Answered: B - What is the effect of reducing…

Business

Accounting

B - What is the effect of reducing variable costs by 25% on the net profit, if that increase was the result of

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 6P

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Concept explainers

Pricing

Pricing is used as a term in finance and economics, pricing is the process of fixing a value for a product or a service. Pricing establishes a value for a product or service that the customer has to pay. A business can choose from different strategies while deciding to set prices.

Question

1. The sales volume of a company
is one million dollars per month. If
the company spends ($350,000.) per
month as fixed costs, and the variable
costs are equal to ($0.5) of each dollar.
To check sales, it is required: A -
Determine the corresponding volume
of production, the equilibrium cat?
B - What is the effect of reducing
variable costs by 25% on the net
profit, if that increase was the result of
updates in production lines that caused
an increase in fixed costs by 10%. Note
that sales volume will not change?
C- What is the effect of reducing fixed
costs by (10%) on the net profit, if that
reduction is
Will it cause an increase in variable
costs by a similar percentage, knowing
that the sales volume will not change?

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