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Griffin's

Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of

$630,000

and a contribution margin of

70%

of revenues.

Griffin

feels like he's in a giant squeeze play: The automotive manufacturers are demanding lower prices, and the steel producers have increased raw material costs.

Griffin's

contribution margin has shrunk to

50%

of revenues. The company's monthly operating income, prior to these pressures, was

$112,000.

Read the

requirements

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.

Requirement 1. To maintain this same level of profit, what sales volume (in sales revenue) must

Griffin

now achieve?

Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach.

(

Fixed expenses

+

Operating income

)

Contribution margin ratio

=

Target sales in dollars

(Round your answer up to the nearest whole dollar.)

Griffin must now achieve sales of

$1,484,000

to maintain the same level of profit.

Requirement 2. If monthly sales are

$1,060,000,

by how much will he need to cut fixed costs to maintain his prior profit level of

$112,000

per month?

Fixed expenses can only be		in order to maintain the prior profit level of $112,000 per month. Therefore, Griffin
will have to save at least		per month in fixed costs by moving operations overseas if he plans to maintain his
prior profit level.

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