Refer to Granville Steel Parts in E7-28A. The owner feels like he’s in a giant squeeze play:

The automotive manufacturers are demanding lower prices, and the steel producers have increased raw material costs. Granville’s contribution margin has shrunk to 60% of revenues.

The company’s monthly operating income, prior to these pressures, was \($216,000\).

Requirements 

1. To maintain this same level of profit, what sales volume (in sales revenue) must Granville now achieve?

2. Granville believes that monthly sales revenue will go only as high as \($1,040,000\). He is thinking about moving operations overseas to cut fixed costs. If monthly sales are \($1,040,000,\) by how much will he need to cut fixed costs to maintain his prior profit level of \($216,000\) per month?

Data From E7-28A:-

Granville Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of \($720,000\) and a contribution margin of 90% of revenues.

• Compute Granville Steel Parts’ monthly breakeven sales in dollars.
• Use the contribution margin ratio to project operating income (or loss) if revenues are \($540,000\) and if they are \($1,040,000\).