Practice 3:Bob Company, a sole proprietorship, sells only one product. The regular price is \$160Variable costs are 55 % of this selling price, and fixed costs are \$8,400 a month.Management decides to decrease the selling price from \$160 to \$145 per unit. Assume thatthe cost of the product and the fixed operating expenses are not changed by this pricingdecision(a) At the original selling price of \$160 a unit, what is the contribution margin ratio?%(b) At the original selling price of \$160 a unit, what dollar volume of sales per month isrequired for Bob Company to break-even? (Round your answer to the nearest wholedollar.) \$(c) At the original selling price of \$160 a unit, what dollar volume of sales per month isrequired for Bob Company to eam a monthly operating income of \$6,500? (Roundyour answer to the nearest whole dollar.) \$(d) At the reduced selling price of \$145 a unit, what is the contribution margin ratio?(e) At the reduced selling price of \$145 a unit, what dollar volume of sales per month isrequired to break-even? (Round your intermediate percentage to one decimal placeand final answer to the nearest whole dollar.) \$(While questioning management's sanity in making this decision, you pause toconsider whether it is ever a good idea to adjust prices to the point where you aremaking less money. Provide 2 possible explanations why Bob may have beenjustified in their decision to reduce the price.

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Practice 3:

Bob Company, a sole proprietorship, sells only one product. The regular price is \$160. Variable costs are 55% of this selling price, and fixed costs are \$8,400 a month.

Management decides to decrease the selling price from \$160 to \$145 per unit. Assume that the cost of the product and the fixed operating expenses are not changed by this pricing decision.

• At the original selling price of \$160 a unit, what is the contribution margin ratio? ________%

• At the original selling price of \$160 a unit, what dollar volume of sales per month is required for Bob Company to break-even? (Round your answer to the nearest whole dollar.) \$________

• At the original selling price of \$160 a unit, what dollar volume of sales per month is required for Bob Company to earn a monthly operating income of \$6,500? (Round your answer to the nearest whole dollar.) \$________

• At the reduced selling price of \$145 a unit, what is the contribution margin ratio? ________%

• At the reduced selling price of \$145 a unit, what dollar volume of sales per month is required to break-even? (Round your intermediate percentage to one decimal place and final answer to the nearest whole dollar.) \$________
• While questioning management’s sanity in making this decision, you pause to consider whether it is ever a good idea to adjust prices to the point where you are making less money. Provide 2 possible explanations why Bob may have been justified in their decision to reduce the price.

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Cost-Volume-Profit (CVP) Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of un...

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