ase: Cost Structures for Global Shippers Inc.

Management from Global Shippers Inc, an international shipping business, is in the process of assessing the choice between two different cost structures for the business. Option A has relatively higher variable costs per unit shipped but lower annual fixed costs, while Option B has the oppositerelatively lower variable costs in its cost structure but higher fixed costs. Assume that delivery selling prices per unit are constant. The table below contains critical information in making the decision:

Cost Information

Option A

Option B

Delivery price (revenue) per shipment

$100

$100

Variable cost per shipment delivered

$85

$60

Contribution Margin per unit

$15

$40

Fixed costs (annual)

$1,200,000

$4,500,000

Management wants you to write a professional report, answering the following questions:

Questions

1) What is the break-even point, in terms of volume (i.e., number of shipments per year), for Option A? Option B?