Question

d e Average race will result from an u ns with and how your work Actions controin astute informed commentary where appropriate and connections to read and other content Case Cost Structures for Global Shippers Inc. Ma r t from Shippers in an email usness is in the process of the two differenc Option Alas relatively higher warble costs per unit ed but lower an d we Opon has the r ivewer but h e dico. Assume that everywing prices er stare constant. The table below cos tica information making the decision e s for the new costs in its costructure Costinormation Option B Delivery price revenues per Option 100 PEOPLE 85 Variable cost per shipment delivered Contribution Margin per unit Fixed costs annual) 315 51.200,000 ACTIVITIES 54.500.000 e for Mangan wants you to write a profesional reportagering the long questions Questions What is that it i s of volume e number of homens per year Onion Open How many shines would have to be made under Option to pro t o ,000 for an anne period How many per y o u have to be made under Option A lo produce an operating to revenue? many showered under Option to producent income of 18.00 Betw e e tax rate of 4 ACCESSIB e 9

Answer 1

			Option A	Option B	Formulas
1	a.	Fixed Costs	$1,200,000	$4,500,000
	b.	Contribution margin per unit	$15	$40
	c.	Breakeven point (a)/(b)	80,000	112,500	(Fixed cost/contribution per unit)
			Units	Units
2	a.	Operating income under option A required		$30,000
	b.	Fixed Costs		$1,200,000
	c.	Contribution per Unit		$15
	d.	Required shipment units(a+b)/(c )		82,000	(Target profit+fixed Cost)/Contribution per unit
3		Let X unit of shipment is required to produce margin of 9% on sales
		Total Sale Value	100 X
		Variable Cost	85 X
		Total Contribution	15 X
		Fixed Cost	$1,200,000
		Operating Income	(15 X - 1,200,000)
		and also, Operating income = 100 X * 9% = 9 X
		hence,
		9 X = 15 X - 1,200,000
		X = 1,200,000/6
		X = 200,000
		hence, 200,000 units of shipment required of Option A to produce 9% of sales revenue
4		Net income required	$180,000
		Tax rate	40%
		Operating Income	$300,000	180,000/(1-.4)
		Add: fixed Cost	$4,500,000
		Total contribution required	$4,800,000
		Contribution per unit	$40
		Units required to be sold	120,000	(4800,000/40)

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