Question:
Abado Profiles provides testing services to school districts that wish to assess students" reading and mathematical abilities. In 2010 Abado evaluated 60,000 math tests and 20,000 reading tests. An income statement for 2010 follows.
|
Math Testing
|
Reading Testing
|
Total
Company
|
|
Total
|
Per Unit
|
Total
|
Per Unit
|
|
Sales
|
$1,200,C00
|
$20
|
$720,000
|
$36
|
$1,920,000
|
|
Variable costs
|
840,000
|
14
|
360,000
|
18
|
1,200,000
|
|
Contribution margin
|
$ 360,000
|
$ 6
|
$360,000
|
$18
|
720,000
|
|
Fixed costs
|
|
|
|
|
360,000
|
|
Operating income
|
|
|
|
|
$ 360,000
|
Required
1. What is Abado"s breakeven point in sales dollars?
2. In an effort to raise the demand for reading tests, managers are planning to lower the price from $36 per test to $20 per test, the current price of the math test. They believe that doing so will increase the demand for reading tests to 60,000. Prepare a contribution format income statement reflecting Abado"s new pricing and demand structure.
3. What will be Abado"s breakeven point in sales dollars if this change is implemented? Do you recommend that Abado make the change?