Luka Manufacturing Company (LMC) commenced operations in 2021 and started producing two types of products: Type-A and Type-B for local sales in Victoria. The market is highly competitive, and the company is keen to maximize its profitability by using cost-volume-profit (CVP) techniques. You are hired by LMC to work as a part-time accountant. The cost accountant of the company has complied relevant data from the annual budget for the year ended 31 December 2021 to assist you complete your task.

	Model-1	Model-2
Budgeted annual sales units	1,500	2,500
Budgeted sales price per unit	$520	$800
Budgeted variable manufacturing cost per unit	$320	$460
Budgeted variable Selling & Admin. Cost per unit	$100	$150

 

Annual Fixed Costs:
Fixed Manufacturing cost	$220,000
Fixed Selling & Admin cost	$80,000

Required: (Show all formulas and computations, and round values to two decimal places - e.g., 85.24)

1. Calculate the number of Type-A and Type-B products that LMC should produce and sell to reach break-even point in 2021. (Ignore income taxes.) 

2. Compute the safety margin in units for the year 2021.  Explain the importance of knowing or calculating safety margin. 

3. How many units of Type-A and Type-B products should the company sell to earn before tax profit of $43,750 in 2021? 

4. Explain factors that affect the design of appropriate organizational structure.