Cirrus Industrial Products produces two types of power converters Scientific and Commercial. In the coming year, Cirrus expects to sell 1,000 Scientific and 3,000 Commercial units. The following information was taken from the budgeted income statement for the next year:

In your role as management accountant, you have been asked to conduct some analysis and prepare a report for the Companys Board of Directors. The members of the Board come from different walks of life some understand accounting well, others do not.

Required: Prepare a report for the Board. Include the following:

1. Why is breakeven analysis done?
2. What is Cirrus sales mix? Why do we compute it?
3. How many units of each product must be sold in order for the company as a whole to break even?
4. Provide the board another means of calculating breakeven using revenue figures, using information in the total column above.
5. Some Board members are concerned about a downturn in the economy, and they worry about the risk of a reduction in sales leading to financial losses. Describe a measure which is used to assess this risk, and provide the analysis / calculations.
6. The Director of Marketing has identified an opportunity: If the selling price of Scientific converters were reduced by 15%, the sales volume (in units) would increase by 60%. The Board members would like to know if doing so would be a good idea.

Sales Less: Variable Expenses Contribution Margin Less Direct Fxed Expenses Product Margin Less Common Fixed Expenses Operating Income SCENTEC COMMERCIAL $10,000 $36,000 $6,000 $27,000 $4,000 $9,000 $1,500 $3,200 $2,500 $5,800 TOTAL 546,000 $33,000 $13,000 $4,700 $8,300 $3,100 $5,200