Julia Child Company is a local small business and it sells baby car seats. Since the economy condition is changing due to recession, the company wants to understand the operational risks they have to face this year. Normally, the company sells its product through retailers for an average of $85 each but this year they have to decrease the average price to $80. The variable cost of each car seat is $40 and monthly fixed manufacturing costs totals $5,000 and fixed selling costs total $6,000.
The clients have a few questions for you and need you give them the answers during the upcoming meeting next week.
Required:
What is the breakeven point in number of car seats? What is the margin of safety, assuming sales total $32,000? What is the breakeven level in car seats, assuming variable costs decrease by 10%? What is the breakeven level in car seats, assuming the selling price goes up by 5%, fixed manufacturing costs decline by 5%, and other fixed selling decline by $1,000?
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