Excellent Text Book Company produces an accounting text that is used by many universities and colleges. The company sells the book to bookstores at a price of $43.50 each. The costs of manufacturing and marketing the text at the companys normal volume of 3,000 units per month are:
Unit manufacturing costs:
Variable materials
$5.50
Variable labour
8.25
Variable overhead
4.2
Fixed overhead
6.6
Total unit manufacturing costs
$24.55
Unit marketing cost:
Variable
2.75
Fixed
7.7
Total unit marketing costs
10.45
Total unit costs
$35.00
Required:
a. What is the breakeven volume in units? In sales dollars?
b. Market research indicates that monthly volume could increase to 3,500 units, which is well within production capacity limitations if the price were cut from $43.50 to $38.50 per unit. Would you recommend this action be taken? Support your response by showing your calculations.