peter Industries Ltd. (Max) produces a single product at its facility in North America.

Management at Max have the projections for the upcoming year as follows:

Annual fixed costs $240,000

Selling price per unit $40

Contribution margin ratio 0.4

Expected sales volume 20,000 units

Required:

a) Calculate the break-even point in units.

b) Calculate Max's expected operating income.

c) Due to increased competition, Max must make some operational decisions. Max has

three options that it can move forward with:

Option 1: Do nothing, and as a result sales volume will decrease by 20%.

Option 2: Increase marketing costs by $50,000 in order to maintain its sales

volume.

Option 3: Reduce the selling price by 10% to maintain its sales volume.

Evaluate the three options and provide a recommendation on which option Max

should move forward with. Show all supporting calculations.

d) Refer to the original information. Due to increased competition, Max must lower the

price of its product to $35 to maintain its sales level, and management wants to

maintain the same operating income. To achieve this, Max has two options

available:

Option 1: Max can purchase a new automated machine that will lower variable

costs per unit to $15 but will increase fixed costs by $80,000.

Option 2: Max can outsource part of its production, which will increase the

variable cost per unit to $26 and will lower fixed costs by $120,000.

Evaluate the two options and provide a recommendation on which option Max

should move forward with. Show all supporting calculations.