Question 2 [10 marks] [CO4, CO5, Module 2: MO1, MO3, MO5] Puleva S.A. of Madrid Spain, manufactures and sells 2 products of luxury finished cutlery Alvaro and Bazan. Current monthly sales and cost information is provided below for each case: Alvaro Bazan Selling price per unit $400 $600 Variable expenses per unit 240 120 Number of cases sold 200 80 Fixed expenses are $66,000 per month. Required:

a) Based on the current sales mix, compute the break-even point of the company, and determine the current margin of safety. Also, prepare a contribution income statement in terms of dollars and Contribution margin percentage for each product and the total company sales. [4 marks]

b) The company has just introduced a new product, Cano, that the company plans to sell for $800 per case. The variable cost of production is expected to be $600, and expectations are for sales of 40 cases per month. The fixed expenses are not expected to increase. Compute the companys new break-even point as a whole and prepare a new contribution margin income statement for each product and the total company sales. [3 marks]

c) Explain (briefly) to the CEO why the break-even point has changed, despite no change in fixed expenses for the company and the addition of new product which has increased total contribution margin. [3 marks]