Solution-Decide between two cost structures

Decide between two cost structures

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Reference no: EM13957746

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:

	Cost Structure
	Alternative #1		Alternative #2
Selling price per unit	$	100	$	100
Variable cost per unit		70		65
Short-term fixed costs/year		55,000		60,000

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 sales level in units is needed under each alternative to achieve this goal?

3.	Suppose again that your profit goal for the coming year is 5% of sales. What sales volume in dollars is needed under each alternative to achieve this goal?

Reference no: EM13957746

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Decide between two cost structures

Reference no: EM13957746

Reference no: EM13957746

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