Leonardo Company has the capacity to manufacture 250000 units annually of its only product. The following information is available.

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 $600000?
(c) In an attempt to achieve better results in the marketplace, management have 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 $10 per unit and would reduce fixed marketing and distribution costs by $250000.
(i) Calculate the number of units required to break even if management implemented the changes.
(ii) Would you suggest management pursue the changes? Explain.
(d) ‘CVP analysis is useful because it is so accurate.’ Comment on this statement.

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Selling price Variable manufacturing costs Fixed manufacturing costs Fixed marketing and administrative costs Variable marketing and administrative costs $130 per unit $60 per unit $900 000 annually $600 000 annually $20 per unit