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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
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 Bhas the opposite-relatively 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 $100 $100 Delivery price (revenue) per shipment 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 volumeie number of shipments per year for Option A? Option B? (2) How many shipments would have to be made under Option to produce operating income of 530,000 for an annual period | How many shipments per year would have to be made under Option to produce an operating margin equal to ou of sales revenue! (4) How many shipments are required under Options to produce net income of 5180,000 per year, oven a corporate tax rate of a (5) Assume that for the coming year totaltuced costs are expected to increase by 1516 for each of the two options. What is the new breakeven point in terms of number of shipments for each option By what percentage did the break even point change for each case? How do these res compare to the percentage increase in budgeted fixed 16) Astume an average income tax rate of 20% Wat volume number of shipments) would be needed to onerate net income of Shiver for each otion ( Which option do you think is the more profitable one for this business? Explain ( Wich opcion do you consider to be more to the business plain calculate degree of operating leverage to this question Type here to search
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