• Compute break-even at each level.
• Is the company likely to achieve its desired target profit of $4,000,000 or more? Support your discussion with financial analysis.
• Compute the margin of safety and explain the meaning of the number derived.
• Should the company go ahead with the new product?
• Would this type of analysis be useful to a large company with a wide range of products?
• ROI (return on investment) and residual income are two other methods that can be helpful for this type of decision. Could they be applied in this situation? Support your answer with financial analysis.
HINT: Don’t forget to use the variable costing approach for your analysis.
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