Lady MacBeth Company sells bottles of dry cleaning solvent (spot remover) for $10 each. The variable cost

Question:

Lady MacBeth Company sells bottles of dry cleaning solvent (spot remover) for $10 each. The variable cost for each bottle is $4. Lady MacBeth’s total fixed cost for the year is $3,600.

Required: (1) Answer the following questions about the company’s break-even point.

(a) How many bottles of spot remover must Lady MacBeth sell to break even?

(b) How would your answer to (Ia) change if Lady MacBeth lowered the selling price per bottle by $2? What if, instead, it raised the selling price by $2?

(c) How would your answer to (Ia) change if Lady MacBeth raised the variable cost per bottle by $2? What if, instead, it lowered the variable cost by $2?

(d) How would your answer to (la) change if Lady MacBeth increased the total fixed cost by $60? What if, instead, Lady MacBeth decreased the total fixed cost by $60?

(2) Answer the following questions about the company’s profit.

(a) How many bottles must Lady MacBeth sell to earn $4,800 profit?

(b) How would your answer to (2a) change if Lady MacBeth lowered the selling price per bottle by $2?

(c) Suppose that for every $1 the selling price per bottle decreases below its current selling price of $10 per bottle, Lady MacBeth predicts sales volume will increase by 325 bottles. Assume that before lowering the selling price, Lady MacBeth predicts that it can sell exactly 1,400 bottles. Can Lady MacBeth earn $4,800 profit by lowering the selling price per bottle by $2? Explain why or why not.

Suppose that for every $1 the selling price per bottle increases above its current selling price of $10 per bottle, Lady MacBeth predicts sales volume will decrease by 200 bottles. Assume that before raising the selling price, Lady MacBeth predicts that it can sell exactly 1,400 bottles. Can Lady MacBeth earn $4,800 profit by raising the selling price per bottle by $2? Explain why or why not.

How would your answer to (2a) change if Lady MacBeth raised the variable cost per bottle by $2? What if, instead, it lowered the variable cost per bottle by $2?

(f) How would your answer to (2a) change if Lady MacBeth raised the total fixed cost by $60? What if, instead, Lady MacBeth lowered the total fixed cost by $60?

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