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Newton Cellular Ltd. manufactures and sells the Top Line cell phone. For its 2016 business plan. Newton Cellular estimated the following Selling price $800 Variable cost per cell phone $600 Annual fixed costs $140,000 Net income before tax $180,000 Tax rate 40% The March financial statements reported that sales were not meeting expectations. For the first three months of the year, only 100 units had been sold at the established price. With variable costs staying as planned, it was clear that the 2016 after-tax profit projection would not be reached unless some action was taken. A management committee presented the following mutually exclusive alternatives to the president: Reduce the selling price by $60. The sales team forecasts that, with the significantly reduced selling price, 1,900 units can be sold during the remainder of the year. Total fixed and variable unit costs will stay as budgeted. Cut fixed costs by $20,000 and lower the selling price by 15%. Variable costs per unit will be unchanged. Sales of 2,900 units are expected for the remainder of the year. Lower variable costs per unit by 10% through the use of less expensive direct materials and slightly modified manufacturing techniques. The selling price will also be reduced by 20%, and sales of 3,900 units for the remainder of the year are forecast. Instructions (a) Under the current production policy, determine the number of units and sales $ that the company must sell to break even and achieve its desired operating income. (5 marks) (b) Evaluate each alternative and recommend which alternate the company should select and explain why. (10 marks)

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