If a company who is operating at full capacity has:
Annual revenues = $50,000,000.
Total costs = $45,000,000, of which 40% is fixed and 60%
Answer the independent scenarios below
The company is considering expanding capacity. The additional capacity will add $10,000,000 in annual fixed costs. The contribution margin rate will not be impacted.
How much in additional sales will be necessary to justify the added capacity?
Assume something has reduced production and increased total variable costs by an additional 10% of sales. Competitive pressures prevent the company from raising sales prices.
Will the company remain profitable?