We are now in your final year to complete your accounting degree. To give us a practical edge in the area of budgeting and managerial decision making, CIC Higher Education has partnered with Prof. Consulting Group (PCG). The partnership program will offer us a chance to access some of the projects that PCG is working on as part of its consultancy services. This term, PCG has offered Management Accounting students the data presented below. Details of the data presented to us include budgeted sales volume for some months of year 2022 and 2023 as shown below:

Month	Volume	Month	Volume
December 2022	36,000	March	42,000
January 2023	30,000	April	45,000
February	40,000	May	38,000

Additional data includes the following:

a. The desired monthly ending finished goods inventory is 30% of the next month's sales units

. b. Standard direct materials (RM) requirements and costs are as follows: Each product requires 5 Kgs of RM-A at $4.20 per kilogram. Each product requires 4 Kgs of RM-B at $4.00 per kilogram. The company policy states that the monthly desired ending raw materials inventory should be computed from the total RMs requirements (i.e., production needs) of the following month. Hence, RM ending inventory for RM-A should be equal to 22% of the production needs for next month and that of RM-B should be 24%.

c. Production of each unit is expected to take six hours of direct labour at an hourly pay rate of $24.

D, Company uses the concept of flexible budget, and the estimated monthly overhead costs are presented below. The company uses direct labour hours as cost driver for estimating manufacturing overhead costs.

Overhead cost	Fixed	Variable
Supplies	-	$ 1.80
Power	-	1.50
Maintenance	$24,000	1.00
Supervision	28,000	-
Depreciation	110,000	-
Taxes	25,000	-
Other	50,000	2.25

e, Budgeted selling and administrative expenses are made on monthly basis using a flexible budget formula and that sales volume is considered as the best cost driver

	Fixed costs	Variable costs
Supplies	$80,000	-
Sales commission	-	$2.30
Depreciation expense	50,000	-
Shipping expenses	-	1.50
Other expenses	25,000	0.80

f. Budgeted sales price per product is $360.

g. The company collects 60% of cash from sales in the month of sales and 40% in the month following sales. All purchases are made in cash and the company gets a discount of 2%. The cash balance on 1st of January 2023 is estimated to be $200,000. The company borrows money when it faces cash shortages each month. The loan agreement signed with a local Bank stipulates that money is borrowed in multiples of $1,000 at an interest rate of 5%. The company makes repayment on loans when it has cash surplus.

Business operations in the post pandemic era could prove to be challenging and the company is looking for suggestions on how to manage costs, improve profitability, and sustain its business for the future. company has continued its business in the year 2022 but at a small scale and cost management was immensely important. Salary expense is huge, and the firm didn't pay annual increments in salary and staff training and development costs are almost cut to bones. Management has observed frustration in the workforce but are unable to address their concerns as operations are not at full swing and it needed some time to recover. The production head has suggested that the company should consider changes in its production facilities by reducing labour and investing in automation. This is expected to reduce direct labour costs by 60% and increase its productivity by 80%. However, automation will increase investment in fixed assets amounting $200,000. Additionally, the company is considering the possibility of subcontracting its product sales and distribution activities to an external firm. If the plan is accepted and implemented, the company could potentially save up to 90% of its budgeted total selling and administrative expenses. However, the plan involves incurrence of 10% sales commission for product distribution as part of the deal. Management of the company heard about the importance of CVP analysis in the process of planning and has asked PCG to present a comparative breakeven point analysis. This will involve computation of breakeven point before implementation of the above changes versus breakeven point assuming the above proposed changes are implemented.

1. Conduct CVP analysis using the data and present breakeven point in units. This will show company how many units should be produced and sold to breakeven before implementing the changes

. 2. Additionally, re-compute breakeven point considering that the proposed changes in automation and subcontracting of its sales and distribution activities to external firm are implemented by the company. Based on computations, advise which option is the best for the company. We will need to explain how the proposed changes will affect the company's cost structure (i.e., variable and fixed costs).