Barclays PLC (BP) produces a single product. It sold 25,000 units last year with the following results.
Sales $625,000 Variable costs $375,000 Fixed costs $150,000
Profit $100,000
In an attempt to improve its product, Barclays’s managers are considering replacing a component part that costs $2.50 with a new and better part costing $4.50 per unit during the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $18,000 and have a useful life of 6 years with no salvage value. The company uses straight-line depreciation on all plant assets.
Required:
a). What was Barclays Company’s breakeven point in units last year?
b). How many units of product would Barclays Company have had to sell in the past year to earn a profit of $77,000?
c). If Barclays Company holds the sales price constant and makes the suggested changes, how many units of product must be sold in the coming year to break even? (
d). If Barclays Company holds the sales price constant and makes the suggested changes, how many units of product will the company have to sell to make the same profit as last year?
e). If Barclays Company wishes to maintain the same contribution to sales ratio, what selling price per unit of product must it charge next year to cover the increased materials costs?
f). Briefly explain the importance of using “profit-volume graph” compared to the “basic break-even graph”.
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