Q6

Graham's Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of $660,000 and a contribution margin of 80% of revenues. Graham feels like he's in a giant squeeze play: The automotive manufacturers are demanding lower prices, and the steel producers have increased raw material costs. Graham's contribution margin has shrunk to 60% of revenues. The company's monthly operating income, prior to these pressures, was $156,000. Read the requirements. Requirement 1. To maintain this same level of profit, what sales volume (in sales revenue) must Graham now achieve? Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach. ( Fixed expenses Operating income ) + Contribution margin ratio = Target sales in dollars (Round your answer up to the nearest whole dollar.) Graham must now achieve sales of $ 1,360,000 to maintain the same level of profit. Requirement 2. If monthly sales are $1,020,000, by how much will he need to cut fixed costs to maintain his prior profit level of $156,000 per month? Fixed expenses can only be will have to save at least in order to maintain the prior profit level of $156,000 per month. Therefore, Graham per month in fixed costs by moving operations overseas if he plans to maintain his prior profit level. Requirements 1. To maintain this same level of profit, what sales volume (in sales revenue) must Graham now achieve? 2. Graham believes that his monthly sales revenue will only go as high as $1,020,000. He is thinking about moving operations overseas to cut fixed costs. If monthly sales are $1,020,000, by how much will he need to cut fixed costs to maintain his prior profit level of $156,000 per month? Print Done