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In the dynamic landscape of manufacturing and sales, Caribann is a company with the

potential to produce $100,000$ units of its sole product annually. Caribann's interplay of costs

and production capacity prompts an analysis that will guide it in navigating the balance

between revenue generation and cost management. As we examine Caribann's scenario,

critical financial data emerges, laying the foundation for strategic decision$-$making.

The following information is available:

Selling price $------------------------------------------------------$$$42$ per unit

Variable manufacturing costs $-----------------------------------$$$24$ per unit

Fixed manufacturing costs$---------------------------------------$$$360,000$ annually

Fixed marketing and administrative costs $---------------------$$$240,000$ annually

Variable marketing and administrative costs $-----------------$$$4$ per unit

Required:

$1)$ Calculate breakeven point in units. $(5$ marks$)$

$2)$ Compute the quantity of units which need to be sold to earn a target annual profit of

$$120,000(5$ marks$)$

$3)$ In attempting to achieve better results in the marketplace, management has been looking at

changing the reward system for marketing, distribution and sales personnel. This would result

in an increase in variable marketing and administrative costs by $$2$ per unit, and would

reduce fixed marketing and distribution costs by $$100,000$:

a$)$ Calculate the number of units required to breakeven if management implemented

the changes

b$)$ Would you suggest that management pursue the changes? Explain

$4)$ By reference to the above data:

How can a company effectively use CPV $($Cost$-$Volume$-$Profit$)$ analysis to make strategic

decisions about its product pricing and production levels?

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