Cost structure

You are currently trying to decide between two cost structures for your business: one with a greater proportion of short-term fixed costs and another more heavily weighted to variable costs. Estimated revenue and cost data for each alternative are as follows:  

Cost Structure: Selling price per unit  Variable cost per unitShort-term fixed costs per year
Alternative 1 1007560000
Alternative 21007065000


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:




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