The following statement relating to the financial year 2012 of cariba manufacturing limited is as follows

$000 $, 000

Sales (22,000 units) 3,300

Direct materials 726

Direct Labor 374

Production overhead 796

1,898

Gross Profit 1,402

Selling overhead 1,402

Net profit 360

The variable production overheads were $9 per unit while the variable selling overhead were $11 per unit .

Required:

a) Calculate the contribution margin per unit and the margin of safety in units for the latest financial year

The company above, cariba Manufacturing Ltd, has a capacity of 30,000 unit per year. Management is not happy with the financial performance for the year, and two courses of action for the coming year were proposed in the recent management meeting as follows-

i) The sales manager believed that unit volume would increase by 30% with the incurrence of $200,000 on advertising.

ii) The general manager considered the full capacity would be reached if the selling price were cut by 10%.In addition , the direct material cost would be reduced by 5% following a minor modification of the specification of the product

Required:

b) Prepare the budgeted operating statement for the upcoming year in a columnar format, using a contribution margin approach, under each alternative.( show working )

c) Explain CPV analysis by using the calculations above.