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Ethics, CVP analysis. Megaphone Corporation produces a molded plastic casing, M&M101, for many cell phones currently on the market. Summary data from its 2017 income statement are as follows:
Revenues | $5,000,000 |
Variable costs | 3,250,000 |
Fixed costs | 1,890,000 |
Operating income | $(140,000) |
Joshua Kirby, Megaphone’s president, is very concerned about Megaphone Corporation’s poor profitability. He asks Leroy Gibbs, production manager, and Tony DiNunzo, controller, to see if there are ways to reduce costs.
After 2 weeks, Leroy returns with a proposal to reduce variable costs to 55% of revenues by reducing the costs Megaphone currently incurs for safe disposal of wasted plastic. Tony is concerned that this would expose the company to
- 1. Calculate Megaphone Corporation’s breakeven revenues for 2017.
Required
- 2. Calculate Megaphone Corporation’s breakeven revenues if variable costs are 55% of revenues.
- 3. Calculate Megaphone Corporation’s operating income for 2017 if variable costs had been 55% of revenues.
- 4. Given Leroy Gibbs’s comments, what should Tony DiNunzo do?
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Chapter 3 Solutions
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