Plumb NZ, a plumbing manufacturer, has capacity to produce 25,000 waste pipe units in its factory, under normal circumstances. It is budgeting to produce and sell 20,000 waste pipes in the next year. Each waste pipe will sell for $25 and will have variable costs of $17. The fixed costs for the year are budgeted at $120,000.

REQUIRED: a) Determine the break-even point in units for the pipes.

b) Determine the profit Plumb NZ would make if it produces and sells 20,000 pipes next year.

c) Plumb NZ is considering purchasing new machinery which will increase the annual fixed costs by $22,000, but which will reduce the variable costs by $1.20 per pipe. Would you recommend Plumb NZ purchase the new machinery if the company expects to make and sell 20,000 pipes next year? Explain your answer.

d) Assuming Plumb NZ does not purchase the new machine, what will the sales income have to be if the after-tax profit is to be 20% of sales? (The tax rate is 30%)

e) Briefly explain how CVP analysis can be used for managerial planning