Question 3 Lacantina Arts is a small company that specialises in the manufacture of curios to customer specifications. The company recently opened a specialised unit that is dedicated to the manufacture of a curio piece popularly known as "pipi". The unit is staffed by a manager and various sales personnel. The unit manager is remunerated on a fixed salary basis and the sales personnel receive a fixed salary plus commission. As part of a review of the first year of operations, the unit manager has provided you with the following information as part of an effort to assess the unit's financial viability: Selling Price per unit Variable manufacturing cost per unit Facilities rental per annum Salaries (excluding sales commissions) $ 600 390 1 200 000 4 000 000 The unit manager is unsure of how to deal with selling and administration expenses. She has extracted the following information from the cost ledgers: Cost Units $2 750 000 125 000 $3 500 000 250 000 Ignore taxation for purposes of answering this question. Required a) Determine the break-even point in units and in dollar value. b) Management is considering a proposal from the sales force that would see them forego their sales commission for an increase in their salaries. The proposal would see fixed salaries increase by total a total sum of $1 620 000. What would be the new break-even point in units under such a scenario? c) Head office is considering, as an incentive based on the original information, paying the unit manager $6,00 per unit sold in addition to her current fixed salary. Such incentive is conditional to the unit managers making annual profit of $500 000 plus $50 profit per unit sold. How many units must be sold under such scenario? d) Based on the information in (c) above, calculate the marginal safety (%) and explain its meaning. e) List five key assumptions underlying cost-volume-profit analysis