Alloy Manufacturers produces a molded plastic casing for laptops. Summary data obtainedfrom its 2018 income statement.

Revenue

$5,000,000

Variable cost

$3,000,000

Fixed cost

$2,160,000

($160,000)

The vice president,Sarah, is very concerned about Alloy Manufacturer's poor profitability. She asks Max Lemons, production manager and George Bush, controller, to see if there is anyway to reduce the costs.

After 2 weeks Max returns with a proposal toreduce variable cost to 52% of revenue by reducing the cost Alloy currently incurs for safe disposal of wasted plastic. George is concerned that this would expose the company to potential environmental liabilities. He tells Max "We would need to estimate some of these potential environmental cost and include them in our analyses". " You can't do that," Max replies. " We are not violating any laws. There is some possibilities that we may have to incur environmental costs in the future, but if we bring it up now, this proposal will not go throughbecause our senior always assumes these cost to be larger than they would turn out to be. The market is very tough, and we are in danger of shutting down the company. We don't want all our colleagues to lose their job. The only reason our competitors are making money is because they are doing exactly what I am proposing.

Required:

i)Compute the Break even for 2018.

ii)Compute the Break even if variable cost are 52% of revenues.

iii)Compute the operating income for 2008 if variable costs had been 52% of revenue.

iv)Given Max comments, what should George Bush do? Justify your answers.