3F furniture dealer has always sold its merchandise through 4 company-operated
stores. Last year sales were birr 1million and net profit was 8% of sales. Fixed
costs were birr 170,000. As a result of shifting population and increased
competition, the four locations have become less desirable. 3F is considering
eliminating its retail stores in favor of door-to-door selling. It is estimated that
sales would increase by 25% and net profit by birr 30,000. Fixed costs would
increase by birr 30,000 because operations would be moved to a low-rent
warehouse. Required
a) What was the break-even point under the old situation?
b) What will be the break-even point under the proposed situation?
c) What birr sales volume must be obtained under the proposed plan to make as
much profit as last year?
