Mini-Case 12-1: Bowden Brake Service (Part A)

Essay

Mini-Case 12-1: Bowden Brake Service (Part A)
Jim Bowden, owner of Bowden Brake Service, is planning to expand his six-year-old brake service to include tune-ups and tire services. Based on budget estimates for the upcoming year, Jim expects net sales to be $825,000 with a cost of goods sold of $530,000 and total operating expenses of $210,000. From the budget he created, Jim computes fixed expenses to be $168,000, while variable expenses (including cost of goods sold)are $572,000. Jim is concerned that the new cost structure may damage his ability to produce a profit and he wants to perform a break-even analysis for the upcoming year to gain insight.
-If Jim were to reduce his fixed costs by 10 percent by reducing a middle management position, what benefit would that be to him and the company? What would his new contribution margin be?