Cost structure

You are currently trying to decide between two cost structures for your business: one that has a greater proportion of short-term fixed costs and another that is more heavily weighted to variable costs. Estimated revenue and cost data for each alternative are as follows:   $TB@ Cost Structure: #Selling price per unit#  Variable cost per unit#Short-term fixed costs per year Alternative 1# 100#75#60000 Alternative 2#100#70#65000 $TE@ Required:   1. What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same?   2. Suppose your profit goal for the coming year is 5% of sales (i. E., operating profit/sales = 5%). What is the sales level in units needed under each alternative to achieve this goal? 3. Suppose again that your profit goal for the coming year is 5% of sales. What is sales volume in dollars needed under each alternative to achieve this goal?

Correct answer:

a =  1000
p1 =  2405
p2 =  2170

Step-by-step explanation:

75 a+60000=70 a+65000  5a=5000  a=1000
p=5%=1005=0.05  (10075) p160000=p p1 (10075) p160000=0.05 p1  24.95p1=60000  p1=2404.809619=2405
(10070) p265000=p p2 (10070) p265000=0.05 p2  29.95p2=65000  p2=2170.283806=2170



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