B-18

B-18.07

Total fixed costs

$2,400,000

Total variable costs

1,500,000

Total revenues

4,500,000

(a)

(b)

Quintanilla Corporation's controller is preparing a business plan for 20X7. The anticipated

level of business activity consists of the following key cost factors:

Quintanilla's Bank has issued an economic advisory report suggesting that companies

should anticipate a severe economic downturn during 20X7.

Determine the level of volume reduction that Quintanilla can absorb before

becoming unprofitable.

Distinguish between committed fixed costs and discretionary fixed costs. What is

the importance of this distinction in planning for business cycles?