The Solutions Shop sells a popular business computer package for $300 per package. The

following current information is available

Variable costs per package:

Amount payable to the supplier of the package

Sales commission

Delivery costs

Annual fixed costs:

Rent

Manager's salary

Insurance

$200

$25

$5

$230

$5 200

$36 000

$800

$42 000

Required

a. Calculate the contribution per unit of the business at present. What is the importance of this

figure?

b. Calculate the number of packages the business must sell in a year to break-even?

c. Assuming the selling price per unit and the cost structure of the business remain as they are at

present, how many packages would the business need to sell in a year to make a profit of $98

000?

d. Given recent trends, the business expects to sell only 1 800 packages in the next year. Assuming

the selling price per unit and the cost structure of the business remain as they are at present,

determine the expected profit of the business for the next year. What is the margin of safety at

this level of activity?

e. The manager is not happy with the projected profit figure. She believes that if the selling price

is reduced to $290 per package, and $18 000 is spent on advertising during the year, the

number of packages sold will be 2 600. With supporting calculations, explain whether the

manager's plan should be adopted. Refer to the new breakeven point in your answer.