Using CVP analysis to evaluate proposals Use your understanding of breakeven analysis and cost behaviour patterns to evaluate the proposals in the following exercise. Exercise A summary of a manufacturing company's budgeted profit statement for its next financial year, when it expects to be operating at 75 per cent of capacity, is given below. Sales 9,000 units at 32 288,000 Less: direct materials 54,000 direct wages 72,000 production overhead fixed 42,000 - variable 18,000 186,000 Gross profit 102,000 Less: admin., selling and dist'n costs: - fixed 36,000 - varying with sales volume 27,000 63,000 Net profit 39,000 It has been estimated that: ) if the selling price per unit were reduced to 28, the increased demand would utilise 90 per cent of the company's capacity without any additional advertising expenditure; (i) to attract sufficient demand to utilise full capacity would require a 15 per cent reduction in the current selling price and a 5,000 special advertising campaign. You are required to: (2) calculate the breakeven point in units, based on the original budget; b) calaulate the profits and breakeven points which would result from each of the two altemadves and compare them with the original budget