Question - CVP analysis and financial modeling (adapted from CMA exam). Bronkowski is a retailer for high-tech recording disks. The projected operating profit for the current year is $200,000 based on a sales volume of 200,000 units. The company has been selling the disks for $16 each; variable costs consist of the $10 purchase price and a $2 handling cost. The company's annual fixed costs are $600,000.
Management is planning for the coming year, when it expects that the unit purchase price of the disks will increase by 30 percent.
a. Calculate the company's break-even point for the current year in units.
b. What will be the company's operating profit for the current year if there is a 20 percent increase in projected unit sales volume?
c. What volume of dollar sales must be achieved in the coming year to maintain the current year's operating profit if the selling price remains at $16?
d. Would the use of a financial model be helpful to the firm in addressing issues such as those raised in requirements b. and c.? Explain.