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You are currently trying to decide between two cost structures for your business: one that has a greater proportion of short-term fixed costs and another
You are currently trying to decide between two cost structures for your business: one that has a greater proportion of short-term fixed costs and another that is more heavily weighted to variable costs. Estimated revenue and cost data for each alternative are as follows: Cost Structure Alternative #1 $100 Alternative #2 $100 Selling price per unit Variable cost per unit Short-term fixed costs/year 85 80 70,000 75,000 Required: 1. What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same? Sales volume (in units) 2. Suppose your profit goal for the coming year is 5% of sales (i.e., operating profit-sales-5%). What sales level in units is needed under each alternative to achieve this goal? Alternative 1 Alternative 2 Required sales volume 3. Suppose again that your profit goal for the coming year is 5% of sales. What sales volume in dollars is needed under each alternative to achieve this goal? Alternative 1 Alternative 2 Required sales volume in dollars
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