Framed Limited manufactures standard window frames in its factory in Berrimah with a capacity

to produce 180 000 annually. The following costings are available:

Selling price $190 per window

Variable manufacturing costs $90 per window

Fixed manufacturing costs $1 300 000 each year

Fixed marketing and administrative costs $870 000 each year

Variable marketing and administrative costs $30 per window

Required

a. What is the annual breakeven point? Express your answer using numbers of windows

sold.

b. If Framed Limited wished to achieve an annual profit of $910 000 how many windows

would have to be sold?

c. There was a review of their marketing and distribution costs, and it was recommended

that an incentive bonus scheme should be introduced in an effort to increase sales and

reduce costs. The variable marketing and administrative costs would increase by $15 a

window but the fixed marketing costs would decrease by $360 500.

i. What would the new breakeven point be if these recommendations were

implemented?

ii. Do you think that Framed limited should institute the recommendations? Provide

an explanation of the possible benefits and risks

d. A new manager has been reading about CVP analysis and believes that it is such a

useful tool because it provides management with such accurate picture of what is

possible. Discuss this statement