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You are currently trying to decide between two cost structures for your business: one that has a greater proportion of short-term fixed costs and another that is more heavily weighted to variable costs

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You are currently trying to decide between two cost structures for your business: one that has a greater proportion of short-term fixed costs and another that is more heavily weighted to variable costs. Estimated revenue and cost data for each alternative are as follows:

 Cost Structure:

  Alternative 1  Alternative 2

Selling price per unit $100   $100 

Variable cost per unit  85    80 

Short-term fixed costs per year  55,000    60,000 

Required:

1) What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same?

2)Suppose your profit goal for the coming year is 5% of sales (i.e., operating profit/sales = 5%). What sales level in units is needed under each alternative to achieve this goal?

3) Suppose again that your profit goal for the coming year is 5% of sales. What sales volume in dollars is needed under each alternative to achieve this goal?