Question

et can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing Case: Cost Structures for Global Shippers Inc. Management from Global Shippers Inc, an interational shipping business, is in the process of assessing the choice between two different cost structures for the business. Option A has relatively higher variable costs per unit shipped but lower annual fixed costs, while Option B has the opposite relatively lower variable costs in its cost structure but higher fixed costs. Assume that delivery selling prices per unit are constant. The table below contains critical information in making the decision: Option A $100 Option B $100 Cost Information Delivery price (revenue) per shipment Variable cost per shipment delivered Contribution Margin per unit Fixed costs (annual) $85 $60 $15 $1,450,000 $40 $4,700,000 Management wants you to write a professional report, answering the following questions: Questions 1) What is the break-even point, in terms of volume (i.e., number of shipments per year), for Option A? Option B? (2) How many shipments would have to be made under Option A to produce operating income of $43,000 for an annual period? (3) How many shipments per month would have to be made under Option A to produce an annual operating margin equal to 11% of sales revenue? (4) How many shipments are required under Option B to produce net income of $213,000 per year, given a corporate tax rate of 25%? Bi e

Answer 1

Dear Student,

As per the HOMEWORKLIB POLICY, only the first four questions should be answered. Kindly take note of it.

Part 1

Break-even point = Fixed costs / contribution margin per unit

Option A = 1450000/15 = 96667 shipments

Option B = 4700000/40 = 117500 shipments

Part 2

Desired shipments = (fixed costs + targeted operating income)/contribution margin per unit = (1450000+43000)/15 = 99533

Part 3

Desired shipments = (fixed costs + targeted operating income)/contribution margin per unit

X =(1450000+0.11X)/15 = 99533

15X=1450000+0.11X

14.89X = 1450000

X = 973801

Part 4

Operating income = 213000/(1-25%) = 284000

Desired shipments = (fixed costs + targeted operating income)/contribution margin per unit =(4700000+284000)/40 = 124600