Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. The company has succeeded by being very innovative in product design. As a spin-off of a large electronics manufacturer (ElecTech), CG management has extensive experience in both marketing and manufacturing in the electronics industry. A long list of equity investors is betting that the firm will really take off because of the growth of specialized graphics software and the increased demand for computers with enhanced graphics capability. A number of market analysts say, however, that the market for the firms products is somewhat risky, as it is for many high-tech startups, because of the number of new competitors entering the market and CGs unproven technology.

CGs main product is a circuit board (CB3668) used in computers with enhanced graphics capabilities. Prices vary depending on the terms of sale and the size of the purchase; the average price for the CB3668 is $100. If the firm is sucessful, it might be able to raise prices, but it also might have to reduce the price because of increased competition. The firm expects to sell 150,000 units in the coming year, and sales are expected to increase in the following years. The future for CG looks very bright indeed, but the company is new and has not developed a strong financial base. Cash flow management is a critical feature of the firms financial management, and top management must watch cash flow numbers closely.

The per-unit manufacturing costs for 150,000 units of CB3668 follow:

	Current Manufacturing Cost	Proposed Manufacturing Cost
Materials and purchased parts	$6.00	$15.00
Direct labor	12.50	13.75
Variable overhead	25.00	30.00
Fixed overhead	40.00	20.00
Manufacturing information for CB2668:
Number of setups	3000	2300
Batch size	50	50
Cost per setup	$300	$300
Machine hours	88,000	55,000

In addition to the above manufacturing costs, CG has general, selling, and administrative costs ($10 variable cost per unit and $1,250,000 fixed); these costs are not expected to differ for either the current or the proposed manufacturing plan.

Required:

Use CVP analysis with ABC to compute the breakeven point in units for CB3668. Assume that setup costs (currently included in fixed overhead in the above table) are the only costs that vary with the number of batches.