Question 2 CK Ltd manufactures 1GB flash drives. The maximum production capacity is 200,000 units per month. The information related to the selling price and other cost data are as follows: Sales price per unit (current monthly sales volume is 130,000 units) $20 Variable cost per unit Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative expenses Monthly fixed expenses Fixed manufacturing overhead Fixed selling and administrative expenses Required: $6.2 7.0 2.0 1.8 $ 102 300 187 800 (a) Compute the breakeven point in units and sales dollars. (4 marks) (b) Management is currently in contract negotiations with the labour union. If the negotiations fail, direct labour costs will increase by 10% and fixed costs will increase by $22,500 per month. If these costs increase, how many units will the company have to sell each month to break even? (c) (4 marks) Return to original data for this question, determine the operating leverage. If sales volume increased by 7%, what would be the effect on its operating income? (3 marks) (Total: 11 marks)