In Problem 35, Cynthiaâ€™s Cookies must decide between two improvement options. Option 1 is spending $10,000 on a new online marketing campaign that is expected to increase last yearâ€™s sales (units) by 20 percent. Option 2 is to reduce variable costs by 10 percent by spending $10,000 on equipment and process improvements. For Option 2, sales remain at 8,200 boxes. (The assumption here is that each option is equally costly to implement.) What option provides the higher profits?
The selling price per box for Cynthiaâ€™s Cookies is $19.95. Fixed costs are $65,000 and the variable cost per box is $9.88.
a. What is the break-even quantity?
b. If sales last year were 8,200 boxes, what was the net profit?