Bench Industries manufactures large workbenches for industrial use. Recent market analysis indicates that sales are declining for Bench's product because of aggressive competitor pricing. Bench's workbench sells for $800 per unit compared to the competition's comparable workbench sells for $700. Bench's marketing department determined that a price drop to $700 would be necessary to retain market share and continue with annual sales of 14,000 workbenches. The following data are for sales of 14,000 workbenches: Direct materials $3,563,000 Direct labor $975,000 Variable Overhead $400,000 Fixed Overhead $3,910,000 a. What is the current operating income as a percentage of revenue? b. If Bench Industries intends to maintain the same operating income percentage of revenue and lowers the price to $700 what is the target cost per unit

Bench Industries manufactures large workbenches for industrial use. Recent market analysis indicates that sales are declining for Bench's product because of aggressive competitor pricing. Bench's workbench sells for $800 per unit compared to the competition's comparable workbench sells for $700. Bench's marketing department determined that a price drop to $700 would be necessary to retain market share and continue with annual sales of 14,000 workbenches. The following data are for sales of 14,000 workbenches: Direct materials $3,563,000 Direct labor $975,000 Variable Overhead $400,000 Fixed Overhead $3,910,000 a. What is the current operating income as a percentage of revenue? b. If Bench Industries intends to maintain the same operating income percentage of revenue and lowers the price to $700 what is the target cost per unit

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 2P

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