3-24/3-25 Cambridge, Inc., is considering the introduction of a new calculator

3-24

Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics:

Sales price………………….$ 18 each

Variable costs…………….. 10 each

Fixed costs…………………. 20,000 per month

 

Required

a. What number must Cambridge sell per month to break even?

b. What number must Cambridge sell to make an operating profit of $16,000 for the month?

  

3-25

Refer to the data for Cambridge, Inc., in exercise 3-24. Assume that the projected number of units sold for the year is 7,000. Consider requirements (b), (c), and (d) independently of each other.

 Required

a. What will the operating profit be?

b. What is the impact on operating profit if the sales price decreases by 10 percent? Increase by 20 percent?

c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?

d. Suppose that fixed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?