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CVP Question HElP SOON

Forums › ACCA Forums › ACCA PM Performance Management Forums › CVP Question HElP SOON

  • This topic has 0 replies, 1 voice, and was last updated 10 years ago by hixam.
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  • March 6, 2015 at 10:08 am #231468
    hixam
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    • Topics: 10
    • Replies: 7
    • ☆

    Currently: SP was 20. Vc was 8. Fc was 840000pa.
    So breakeven was 840000/12 which is 70000units.

    But When they carriedout newplant FC Has 1200000pa But Vc decreased to 5pu.
    So Now breakeven was 1200000/20-5 which is 80000units.

    Now if the Company Wanted to B/even same quantity as old the Selling Price would be like: 70000*X=1200000 which comes 17.14 for the Contribution PU. So 17.14+Vc 5 which is 22.14 will be the selling price.

    The Next part is confusing for me: Please help me here more.

    If the new plant is built, the company would wants to decrease its price to $19 to improve its competitive position.

    i. At which quantity would profits of the old and the new plants be equal (assuming the price of a toaster is $20 for the old plant but $19 for the new)? How much would the profit be at this quantity?

    ii. If sale are projected to reach 150,000 units per year in the near future, would you recommend construction of the new plant? Why or why not? (Assume that both plants have the capacity to produce this quantity.)

    Can you please Tell me how to do this one. Please soon. Thankx

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