Eye and View Ltd manufactures and sells lamps. The following information relates to the year ended 30 June 2020:

The company sells each lamp for $75

Annual volume = 1,000 units

Manufacturing costs:

Direct material $25 per unit

Direct Labour $10 per unit

Variable manufacturing overhead $15 per unit

Fixed administrative costs $20,000 per year

3a) Calculate the contribution margin per unit.

Question 3b - CVP Analysis

3b) Calculate the break-even point in units and dollars.

Question 3c - CVP Analysis

3c) Calculate the margin of safety in units and dollars.

Question 3d - CVP Analysis

3d) Based on the annual volume given, calculate the net profit for the year ending 30 June 2020.

Question 3e - CVP Analysis

3e) A new initiative is planned for 2021. This will reduce the variable manufacturing overhead by $5 per unit. It will increase the fixed administrative costs by $10,000 per year. Calculate the units that would have to be sold in the financial year ending 30 June 2021 to achieve the same profit as in the previous financial year ending 30 June 2020.

Question 3f - CVP Analysis

3f) Would you recommend Eye and View Ltd going ahead with the new initiative? Justify your answer.