Question 3: Cost-Volume-Profit Analysis

Black and Yellow Limited discuss how to increase their sales during 2021. They have identified the following options. Please note that these options are mutually exclusive.

Option 1: Reduce the selling price per unit by 12 per cent.

Option 2: Improve the product resulting in an increase in the variable cost per unit of 1.15.

Option 3: Spend 9,000 on a social media campaign to target new customer groups.

Option 4: Improve factory efficiency by purchasing more machinery at a fixed extra annual cost of 12,500.

During 2020, the company sold 15,000 units. The cost details were as follows:

Sales	150,000
Variable costs	112,500
Contribution	37,500
Fixed costs	27,500
Profit	10,000

These cost relationships are expected to hold in 2021.

Required:

1. Calculate the break-even point in units for each of the options above. State which option you would recommend and why.

2. In order to ensure that management decision-making is well informed, what other quantitative and qualitative considerations should be considered, and why, before a final decision is made?

Please type all the answer,thanks!!!