Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 21

Profit Planning and Sensitivity Analysis 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:

Required
1. What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same
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
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