CASE # 1 Gossen Company sells pliers throughout the country. Retail price of one plier is $12, while Gossen Co. variable cost per unit is 60% of its sales and fixed cost per month is 35,000.

Requirement:

1. Refer to the original data. Assume that next year management wants the company to earn a profit of at least $250,000. How many units & dollar sales will be required to meet this target profit? (01)

2. Prepare GRAPH showing breakeven point in units and dollar sales along with supportive calculation. (02)

3. Prepare contribution income statement for 95,000 units to determine whether Gossen Company will be having an operating profit or loss. (01)

4. Determine profit of the firm if Gossen Company plans to increase sales commission thus increasing the variable cost by 55% of the current sales. Management also plans to increase its marketing budget monthly by $15,000. To cover up the cost in coming year management plans to increase selling price of pliers by 40%. It is expected, these changes will help the company to sell 110,000 pliers a year. You are required to prepare contribution income statement to determine operating profit or loss. (02)

5. As an alternative to (4), management plans to use good quality of raw material thus increasing the variable cost by 15% of the current sales. Company plans to increase marketing and promotion expense by $ 8,000 per month. In order increase sales company also plan to decrease selling price by 5%. What would be the new annual breakeven point in unit & sales dollars? Comment weather above changes will help to lower down the breakeven point in unit and dollar sales. (03)

6. Break-even analysis is of limited use to management because a company cannot survive by just breaking even." Do you agree? Explain.