Herzog Industries sells two electrical components with the following characteristics. Fixed costs for the company are $200,000 per year.

Required
a. How many units of each product must Herzog Industries sell in order to break even?
b. Herzog's vice president of sales has determined that due to market changes, the sales price of component XL-709 can be increased to $14.00 with no impact on sales volume.
What will be Herzog's new breakeven point in units?
c. Returning to the original information, Herzog's vice president of marketing believes that spending $60,000 on a new advertising campaign will increase sales of component CD-918 to 80,000 units, without affecting the sales of product XL-709. How many units of each product must Herzog sell to break even under this new scenario?
d. The market changes referred to in part (b) indicate additional overall demand for component XL-709. Herzog's vice president of marketing believes that if the company spends $60,000 to advertise component XL-709 rather than CD-918, as planned in part (c), the company will be able to sell a total of 50,000 units of XL-709 at the new price of $14.00. If the company must choose to advertise only one component, which component should receive the additional $60,000 inadvertising?

Transcribed Image Text:

XL-709 Sales price Variable cost Sales volume $%10.00 6.00 40,000 units CD-918 $25.00 17.00 60,000 units