Greek Manufacturing Company produces and sells a line of product that are sold usually all year round. The company has a maximum production capacity of 100,000 units per year. Operating at normal capacity, the business earned Operating Income of $600,000 in 2020. The following cost data has been prepared for the year ended December 31, 2020.

Selling price per unit $50.00

Production Costs: Direct Materials . $10.00

Direct Labour . $8.00

Variable Manufacturing Overhead . $7.00

Fixed Manufacturing Overhead....................... $450,000

Fixed Selling & Administrative Expenses $300,000

Variable selling expense per unit . $10.00

Required:

a) Greeks management team is concerned about the selling expenses associated with the product and wants to reduce the variable selling expense per unit by 30%, which will see a simultaneous reduction in the total fixed selling expenses by $30,000. If they are able to accomplish this feat, it is expected that sales volume for the year will fall by 16% below normal capacity. What must the new selling price per unit be if the company wishes to meet the shareholders profit objective for 2021? How will these changes impact the percentage margin of safety? (7 marks)

b) Assuming sales equal to the normal capacity calculated in a) above, prepare a contribution margin income statement for the year ended December 31, 2020, detailing the components of total variable costs and total fixed costs, and clearly showing contribution and net income. (4 marks)