Reference no: EM131244063

Given the Case Study of "San Jose Motors".

Read the case and answer the following question:

Required:

Step 2

A. List the assumptions implicit in Bob Noonan's calculation of the breakeven point. (Hint: List the general assumptions of CVP analysis, and then apply those assumptions specifically to this case.)

On the basis of the new information, re-evaluate next year's CVP (Use the spreadsheet from Exhibit 3.2 we developed in class and alter it to fit this case):

B. List the possible choices given in the case for the amount of (1) fixed cost, (2) the volume per product, and (3) and the variable costs.

Step 3

C. Pick specific values from Part B to use in the spreadsheet and explain why you chose each one.

D. What is the breakeven point in revenues?

E. Calculate the margin of safety in revenues and calculate operating leverage.

F. At what level of operations will the investment in capacity be covered, ignoring the anticipated increase in labor costs and salaries?

G. At what level of operations will the company be able to meet union demands, ignoring any bonuses for management?

H. At what level of operations will the company be able to increase capacity and give raises to laborers and management?

I. How much can the company spend on new investments for additional capacity, above the planned level of investment?

Step 2

J. How can the breakeven analysis help the managers decide whether to alter the existing product emphasis?

Step 2

K. What factors limit the usefulness of this type of CVP analysis?

Step 2

L. Explain how and why biases might affect the CVP analysis for this company.

Attachment:- Case- San Jose Motors.rar