Profit Planning and Sensitivity Analysis You are currently trying to decide between two cost structures for your business, one that has a greater proportion of short-term fixed costs, the other that is more heavily weighted to variable costs. Estimated revenue and cost data for each alternative is as follows:
| Cost Structure | |
| Alternative #1 | Alternative #2 |
Selling price per unit | $ 100 | $ 100 |
Variable cost per unit | $ 85 | $ 80 |
Short-term fixed costs/year | $ 40,000 | $ 45,000 |
Required
1. What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same?
2. Suppose your profit goal for the coming year is 5 percent on sales (i.e., operating profit/sales = 5%). What sales level in units is needed under each alternative to achieve this goal?
3. Suppose again that your profit goal for the coming year is 5 percent on sales. What sales volume in dollars is needed under each alternative to achieve this goal?
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