The Sports Cap Company manufactures and sells caps for different sporting events. The fixed costs of

QUESTION

The Sports Cap Company manufactures and sells caps for different sporting events. The fixed costs of operating the company are $150,000 per month, and the variable costs for caps are $5 each. The caps are sold for $8 each. What is the breakeven in quantity and dollars for these caps? If the variable costs can be reduced by $1.25, what is the new breakeven in quantity and dollars? If the selling price can be reduced by $1.25, what is the new breakeven in quantity and dollars? What method would you propose to Mr. Smith, the President and CEO of The Sports Cap Co., and why?
Fixed costs per month $150,000 Variable costs $5 Selling price $8 Break even ( in quantity) = Fixed cost / ( Selling price variable cost) Break even ( in dollars) = (Fixed cost / (Selling Price variable cost))*Selling price Break even (in quantity) = $ 150000/($8-$5) Break even (in quantity) per month = 50,000.00 units Break even (in dollars) = ($150000/($8-$5))*$8 Break even (in dollars) per month = $400,000.00 Calculation of break even in quantity and

dollars with reduction in variable costs Fixed costs per month $150,000 Variable costs $3.75 Selling price $8 Break even (in quantity) = $ 150000/($8-$3.75) Break even (in quantity) per month = 35,294.12 units Break even (in dollars) = ($150000/($8-$3.75))*$8 Break even (in dollars) per month = $282,352.94

ANSWER:

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