1) A company produces T-shirt and sells them for $10 each. The marginal cost (ie., variable) of production is $6 each and fixed costs are $400 per annum. The tax rate is 25%.You are required to calculate the following:

Profits for annual sales of 50 units, 100 units and 400 units.

Breakeven sales (in $ and units)

Sales (in $ and units) to earn net income of $500

Operating Profit at sales of $3,000

New breakeven point if sales price and fixed costs are both reduced by 10%. (note, assume the variable costs remain at $6/ unit)

Assume that fixed costs are expected to increase by 15% over the original scenario, and that plant capacity will not enable production of T-shirts to exceed 250 T-shirts for the year. What unit price is needed to earn net income of $500?

2) Assume that the Company intends to expand operations over the original scenario, and thus enters into a 20 years lease at $1,000/ month.It expects to increase the cost of its T-Shirts to $12/ shirt, and reduce variable costs by $1/ shirt.It also expects to earn a net income of $3/ unit.What is the required sales (in $ and units).

Discuss the concept of fixed and variable cost.

What are the weaknesses of CVP analysis (identify 4).