johnson, inc. projects sales for next year will be $70,000 units if the sales pr

Question

johnson, inc. projects sales for next year will be $70,000 units if the sales price is $30. At this level, unit fixed costs will be $10 while total variable costs will be $700,000. The vice president of marketing advises management to reduce sales price to $25 and to undertake a national advertising campaign costing $15000. a. what is the breakeven point for the company in terms of dollars and units before giving effect to the vice president's plan? b. what is the break even point in units after giving effect to the plan? c. the vice president believes that his plan will result in a before tax earnings of $60000. how many units must be sold to reach this earning level? d. using the graph on the next page, create a cost-volume-profit graph for the answer to part b. label all parts of graph and show your work.

Explanation / Answer

Fixed Cost = $10 x 70000 units = $700000

Contribution Per unit = $30 - $10 = $20

A. Before execution of plan

Breakeven Point (in units) = (Fixed Cost/Contribution Per unit)

= (700000/20)

= 35000 Units

Breakeven Point (in Dollars) = 35000 Units x $30

= $1050000

B. After execution of plan

Breakeven Point (in Units) = (700000 + 20000) / 15

= 48000 units

C. Sales To be made for a profit of $60000 = (700000 + 20000 + 60000) / 15

= 52000 Units

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