SITUATION 1: A competitor is offering a 10% discount on the selling price of its Blu-ray DVD players. Vargo Video's management must decide whether to offer a similar discount. Question: What effect will a 10% discount on the selling price have on the break-even point for Blu-ray DVD players? SITUATION 2: To meet the threat of foreign competition, management invests in new robotic equipment that will lower the amount of direct labour required to make Blu-ray DVD players. It is estimated that total fixed costs will increase by 30% and that the variable cost per unit will decrease by 30%. Question: What effect will the new equipment have on the sales volume required to break-even? SITUATION 3: Vargo Video's principal supplier of raw materials has just announced a price increase. The higher cost is expected to increase the variable cost of Blu-ray DVD players by $25 per unit. Management would keep the same selling price for the Blu-ray DVD players. It plans a cost cutting program that will save $17.500 in fixed costs per month. Vargo Video is currently realizing monthly operating income before taxes of $80.000 on sales of 1.400 Blu-ray DVD players. Question: What increase in units sold will Vargo need to maintain the same level of operating income? Moran Company reports the following operating results for the month of August: Management are considering the following independent courses of action to increase net income: 1 Increase the selling price by 2 Reduce variable costs to 10% with no change in total variable costs Instructions: 65% of sales. Compute the operating income to be eamed under each altemative. 1 Current selling price = Amount Amount Current selling price = Formula New selling price = Amount Percent New selling price = Formula New operating income: Title Less: Title Title Less: Title Title 2 New operating income: Which course of action will produce the highest operating income? Alice Oritz is the advertising manager for Value Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $18.000 in fixed costs to the $216.000 currently spent. In addition, Alice is proposing that a 10% price decrease ( $30 to $27) will produce a 20% increase in sales volume (20.000 to 24.000 ). Variable costs will remain at $12 per pair of shoes. Management are impressed with Alice's ideas but are concerned about the effects that these changes will have on the break-even point. Instructions: a) Calculate the current breakeven point in units, and compare it with the breakeven point in units if Alice's ideas are used. b) Prepare CVP income statements for current operations and after Alice's changes are introduced. Would you make the changes suggested? SITUATION 1: A competitor is offering a 10% discount on the selling price of its Blu-ray DVD players. Vargo Video's management must decide whether to offer a similar discount. Question: What effect will a 10% discount on the selling price have on the break-even point for Blu-ray DVD players? SITUATION 2: To meet the threat of foreign competition, management invests in new robotic equipment that will lower the amount of direct labour required to make Blu-ray DVD players. It is estimated that total fixed costs will increase by 30% and that the variable cost per unit will decrease by 30%. Question: What effect will the new equipment have on the sales volume required to break-even? SITUATION 3: Vargo Video's principal supplier of raw materials has just announced a price increase. The higher cost is expected to increase the variable cost of Blu-ray DVD players by $25 per unit. Management would keep the same selling price for the Blu-ray DVD players. It plans a cost cutting program that will save $17.500 in fixed costs per month. Vargo Video is currently realizing monthly operating income before taxes of $80.000 on sales of 1.400 Blu-ray DVD players. Question: What increase in units sold will Vargo need to maintain the same level of operating income? Moran Company reports the following operating results for the month of August: Management are considering the following independent courses of action to increase net income: 1 Increase the selling price by 2 Reduce variable costs to 10% with no change in total variable costs Instructions: 65% of sales. Compute the operating income to be eamed under each altemative. 1 Current selling price = Amount Amount Current selling price = Formula New selling price = Amount Percent New selling price = Formula New operating income: Title Less: Title Title Less: Title Title 2 New operating income: Which course of action will produce the highest operating income? Alice Oritz is the advertising manager for Value Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $18.000 in fixed costs to the $216.000 currently spent. In addition, Alice is proposing that a 10% price decrease ( $30 to $27) will produce a 20% increase in sales volume (20.000 to 24.000 ). Variable costs will remain at $12 per pair of shoes. Management are impressed with Alice's ideas but are concerned about the effects that these changes will have on the break-even point. Instructions: a) Calculate the current breakeven point in units, and compare it with the breakeven point in units if Alice's ideas are used. b) Prepare CVP income statements for current operations and after Alice's changes are introduced. Would you make the changes suggested