Schuch Company sells a single kind of product. In the current month the company sold a total of18,900 units and earned $378,000 as sales. The variable cost per unit is $6.25. The company incursa fixed cost of $170,500 per month.
Required:
i. How many units of product the company must sell to reach break- even point? What will be thebreak- even point in sales dollars?
ii. Prepare the Contribution Margin Income Statement for Schuch Company.
iii. How many units of products the company must sell in order to attain a profit of $105,000?
iv. The manager of Schuch Company predicts that by decreasing selling price per unit by 15%, andusing higher quality of raw material (that will in turn increase raw material cost per unit by$2.00), the unit sales will increase at least by 22%. Should the company go with the managersdecision? Explain your answer.
v. The manager of Schuch Company predicts that by renting a bigger show room to display it’sproducts, more customers will be attracted to the company products, thus unit sales willincrease by 3,000 units per month. Renting a new show room will increase rent expenses byanother $15,000. To compensate for the increase in expenses, the managers wants to increasethe selling price per unit to $22. Compare the current and proposed scenario based on Margin ofsafety (in dollars) values and state whether the company should go with the managers decisionor stick to the current plan. Explain your answer.