Thang Loi Company has the capacity to manufacture 50,000 units annually of its only product. The following information is available.
Selling price $26 per unit
Variable manufacturing costs $12 per unit
Fixed manufacturing costs $180,000 annually
Fixed selling and administrative costs $120,000 annually
Variable selling and administrative costs $ 4 per unit
Required
a. Calculate the number of units that need to be sold annually to break even?
b. How many units would need to be sold to earn a target annual profit of $120,000?
c. In an attempt to achieve better results in the marketplace, management has been looking at changing the reward systems for marketing, distribution and sales personnel. This would result in an increase in variable selling and administrative costs by $2 per unit, and would reduce fixed selling and administrative costs by $50,000.
i. Calculate the number of units required to break even if management implemented the changes
ii. Would you suggest management pursues the changes? Explain.