Production cost and price data for 2020 for Beltar Company are as follows:

Maximum capacity per year 200,000 units

Variable manufacturing costs $12/unit

Fixed factory overhead costs $600,000/year

Variable selling and administrative costs $5/unit

Fixed selling and administrative costs $300,000/year

Current sales price $23/unit

The companys sales for 2020 totalled 185,000 units.

However, a strike at a major supplier has caused a shortage of raw materials, and as a result, 2021 sales will reach only 160,000 units. Top management is planning to reduce fixed costs in 2021 by $59,000.

Management is also thinking of either increasing the selling price or reducing the variable costs, or both, in order to earn 2021 target operating income that will be the same dollar amount as in 2020. The company has already sold 30,000 units in 2021 at $23/unit with the variable costs remaining unchanged from 2020.

Required: Use the Excel template provided to structure your answer.

1. Calculate the contribution margin per unit required on the remaining 130,000 units in order to reach the target operating income in 2021.

2. The president of the company is contemplating a significant change in the manufacturing process for 2022. This change would increase the capacity to 225,000 units. The change would increase fixed factory overhead to $2,200,000, while reducing the variable manufacturing cost per unit to $3.35. All other costs and revenues would remain unchanged. Provide the president with a numerical analysis that will help her make a decision. Structure your analysis by using 2020 sales and costs as a point of reference to compare the effects on operating income of a 19% increase or a 19% decrease in sales volume under both the current and proposed cost structures.

3. After your analysis, provide the president some brief thoughts regarding the potential benefits and risks of a move to this cost structure for 2022.