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The following information applies to ALL parts of CVP and variable costing question.

Electron Company is a semiconductor company based in Wollongong. In the first year of its operations in 2019, it produced a new router system for its corporate clients. The average wholesale selling price of the system is $1,500 each. Electrons actual 2019 costs are:

Variable cost per unit
Direct materials	$110
Direct manufacturing labour	$90
Manufacturing overhead	$240
	$440
Fixed costs
Manufacturing costs	$1,500,000
Administration and marketing	$750,000
	$2,250,000

During 2019, Electron Company produced 12,000 units and 9,000 of which were sold by the end of year resulting in an ending inventory of 3,000 units at the end of the year.

Required:

(a) What is the current breakeven point of the company in units

(b) How many units the company needs to sell next year to make a profit of $900,000?

(c) Compute the number of units required to make a profit of $1,000,000 in the next year if the company adopted the following proposal to adjust both unit selling price and costs. The proposed new selling price is $1,400 and the variable cost per unit is expected to be reduced by $40 by installing more efficient equipment costing $250,000. (Round to the nearest unit).

(d) Prepare an income statement using the variable costing and absorption costing method and explain the difference between the income reported by variable and absorption costing

(e) Assess the operating risk of the Electron company using the margin of safety and operating leverage.

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