Motion Pictures is a Dallas-based video production start-up agency. Imagine the founders are currently trying to decide between two cost structures, one that has a greater proportion of fixed costs (e.g., proprietary equipment), the other that is more heavily weighted to variable costs (e.g., leased equipment). Estimated revenue and cost data for each alternative is as follows:

Alternative #1 Alternative #2

Selling price per unit $100$100

Variable cost per unit $85$80

Fixed cost per year $40,000$45,000

1) Under Alternative #1, what is the amount of revenues that would allow the company to breakeven?

2) What sales volume, in units, is needed for the total costs in each structure alternative to be the same?

3) Suppose the target Return on Sales for the coming year is 5 percent, what is the amount of revenues needed under Alternative#2 to meet this target?