Midundo kabambe a manufacturer of electronic equipment, decided to analyze the profitability of new portable compact disc (CD) player. On CD player line, the company incurred TZS.2,520,000,000 of fixed cost per month while obtaining total revenue of TZS.6000,000,000 from selling 20,000 units. The variable cost was TZS 120,000 per unit
Recently a new machine used in production of CD player has become available. It is more efficient than the machine currently being used. The new machine would reduce company’s variable cost by 20% but leasing it would increase the fixed cost by TZS.96,000,000 per month
(a) Compute the breakeven point in units assuming the use of old machine
(b) Compute the breakeven point in units assuming the use of new machine
(c) Assuming the total sales remain at 20,000 units and the new machine is leased , compute the expected operating profit and compare it with the old machine
(d) Advise the company on whether the machine should be leased, stating the conditions (including the projected demand) on which your advise is based
(e) Advise the company on any four different decisions that can potentially benefit from employing CVP analysis. Give relevant examples in your answer.