Reference no: EM132691895

Yacca Limited has prepared the following profit analysis, for the current financial year:

Sales (150,000 units). $1,275,000

Variable expenses. $712,500

Contribution margin. $562,500

Fixed expenses $252,000

Profit. $310,500

Management are considering a range of options to improve profitability. These options include reducing the selling price by $0.15 per unit and updating machinery and production methods. If machinery and production methods are updated, fixed expenses will increase by $72,000 per year and variable expenses will decrease by $1.40 per unit. However, management are concerned at the increased risk from changes to the level of operating gearing. If the selling price is reduced by $0.15 per unit, the number of units sold is expected to increase by 5%. There is no reason why management cannot reduce the selling price and update machinery and production at the same time.

Required:

Problem a) Calculate the contribution margin per unit, total fixed costs, the breakeven point in units, and total expected profit for all of the possible choices that management can make.