Question
Max-It Ltd. manufactures and sells digital data storage devices. Demand for the previous year was 87,500 units. Currently, the devices are sold at $38.00
Max-It Ltd. manufactures and sells digital data storage devices. Demand for the previous year was 87,500 units. Currently, the devices are sold at $38.00 per unit. The contribution margin ratio is 40%. Annual total fixed costs for the company amounted to $532,000. Max-It has decided to decrease its variable production costs for the coming year, in order to capture a larger market share. This plan would decrease its variable costs by $0.80 per unit. Ignore income tax considerations. Required: (a) Calculate the breakeven point (in units) for the previous year (ie. before the decrease in the variable cost per unit). (b) Compute the net profit for the previous year (before the decrease in the variable cost per unit). (c)Compute the number of devices Max-It needs to sell in order to achieve the same net profit as the previous year (ie. the net profit calculated in part (b) above), if the planned decrease in the variable cost per unit is implemented.
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