Rosario Company: Break Even Analysis
Argentina, and manufactures a component used in farm machinery. The firm’s
fixed costs are 4,000,000 p per year. The variable cost of each component is
2,000 p, and the compoents are sold for 3,000 p each. The company sold 5,000
components during the prior years. (p denotes the peso, Argentina’s national
currency. Several countries use the peso as their monetary unit. On the day
this exercise was written, Agentina’s peso was worth .327 U.S. dollar. In the
following requirements, ignore income taxes.)
1. Compute the break-even point in units.
2. What will the new break-even point be if fixed costs
increase by 10 percent?
3. What was the company’s net income for the prior year?
4. The sales manager believes that a reduction in the sales
price to 2,500 p will result in order for 1,200 more compoents each year. What
will the break-even point be if the price is changed?
5. Should the price change discussed in requirement (4) be
made?
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