a)Grenada Manufacturing Inc. has a single product called a Carib. The company normally produces and sells 80,000 Caribs each year at a selling price of $40 per unit. The company's unit costs at this level of activity are given below:

Direct materials

$ 9.50

Direct labour

10.00

Variable manufacturing overhead

2.80

Fixed manufacturing overhead

5.00

Variable selling expenses

1.70

Fixed selling expenses

4.50

Total cost per unit

$33.50

The total fixed manufacturing overhead is $400,000 and fixed selling is $360,000. The Grenada Manufacturing Inc. has sufficient capacity to produce 100,000 Caribs each year. The company has an opportunity to sell 20,000 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total $14,000. The only selling costs that would be associated with the order would be $1.50 per unit shipping cost.

Alternatively, the company could use the spare capacity to introduce another product called Arawak which it would retail at a price of $60 and produce and sell the 20,000 units. The company's unit costs for the new product would be as follows:

Question 8 continued

Direct materials

$11.40

Direct labour

$12.00

Variable manufacturing overhead

$3.36

Fixed manufacturing overhead

$6.00

Variable selling expenses

$2.04

Fixed selling expenses

$5.40

Total cost per unit

$40.20

Required

i.Using Cost Volume Profit Analysis determine the break-even for this special order of producing the additional Caribs to be sold in the overseas market using the $40 sales price.

ii.Compute the break-even units for the Company if they sell only the existing product of Carib.

iii.Compute the break-even units for the Company if they introduce the new product of Arawak to use the additional space.