Question: Rodney Rogers, a recent business school graduate, plans to open a wholesale dairy products firm. The business will be completely financed with equity. Rogers expects 1st year sales to total $5,500,000. He desires to earn a target pretax profit of dollar 1,000,000 during his 1st year of operation. Variable costs are 40 percent of sales.
[A] Determine how large can Rogers’ fixed operating costs be if he has to meet his profit target?
[B] Find Rogers’ breakeven level of sales at the level of fixed operating costs determined in [A]?