MBA 701 In-Class Problem Week 3

Tenneco, Inc. produces a standard tennis racquet.Sales and cost information for 2019 were:

Units

100,000

Price per unit

30

VC per unit

15

Sales Revenue

$3,000,000

Variable Cost

$1,500,000

Contribution Margin

$1,500,000

Fixed Cost

$600,000

Pre-Tax Profit

$900,000

a.Determine the company's break-even point in terms of both units and sales dollars.

b.Suppose the Company wants to earn pre-tax profits of $1,500,000.How many units must they sell?What are the sales dollars needed to earn this pre-tax profit?

c.Suppose that the company wants to earn after-tax profits of $1,080,000.The tax rate is 40%. How many units must they sell?What are the sales dollars needed to earn this pre-tax profit?

d.Suppose the company is considering paying a top tennis star $60,000 to endorse their racket.Total sales are expected to increase by 3,000 rackets.Should they do this?Why or why not?

e.What is the company's degree of operating leverage?If sales increase by 10%, what happens to their operating profit?

f.What is the company's margin of safety (MOS) in sales $, units, and %?