Question

Data:
	Cost structure alternative 1	Cost structure alternative 2
Delivery price per package delivered	$75	$75
Variable cost per package delivered	$54	$24
Fixed costs (per year)	$605,000	$2,489,302

Case A Requirements

Provide a written report to address the following questions. This report will be presented to the client, so it should be written professionally. Your report should show your calculations.

1. One issue of interest to your client is the volume of business (on an annual basis) needed for her to ‘break-even’. Calculate the break-even point, in terms of the number of deliveries (i.e. units per year) and dollars for cost structure alternative 1 and cost structure alternative 2.
2. Gloria estimates that sales volume will be 60,000 units for alternative 1 and 120,000 units for alternative 2. What is the margin of safety for cost structure alternative 1, in both units and in dollars at that sales volume? What is the margin of safety ratio for both alternatives? Explain to Gloria what is meant by the margin of safety and what information it provides.

Answer 1