CVP Analysis and Price Changes
3-36. CVP Analysis and Price Changes: Argentina Partners. Argentina Partners is concerned regarding the possible impacts of inflation on its functions. Currently, the organization sells 60,000 units for $30 per unit. The variable manufacturing expenses are $15, and fixed expenses are $700,000. Production technicians have recommended administration that they predict unit labor costs to increase by 15 % and unit materials expenses to increase by 10 % in the following year. Out of the $15 variable expenses, 50 % are from labor and 25 % are from materials. Variable overhead expenses are predicted to rise by 20 %. Sales prices can’t rise over 10 %. It’s also predicted that fixed expenses will increase by 5 % as a consequence of raised taxes as well as other miscellaneous fixed expenses. The organization desires to keep the same amount of profit in real dollar terms. It’s predicted that to achieve this goal, profits should rise by 6 % during the year. a. Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented.
- Compute the volume of sales and the dollar sales necessary to provide the 6 percent increase in profits, assuming that the maximum price increase is implemented.
- If the volume of sales were to remain at 60,000 units, what price would be required to attain the 6 percent increase in profits?
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