The following monthly data in contribution format are available for the X Co. and its only product:

Total Sales. $83,700

Variable expenses. 32,700

Contribution margin 51,000

Fixed expenses. 40,000

Net operating income. $11,000

The Company is currently using 60% of its available capacity selling 600 units of product per month.

Required: (each point isseparate)

a. Management is contemplating the use of plastic gearing rather than metal gearing in its product. This change would reduce variable expenses by $9 per unit. The company's sales manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 500 units per month. Should this change be made?

b. What is the sales volume required to achieve a target profits margin 20%?

c. Management wants to increase sales and feels this can be done by cutting the unit selling price by $19.5 and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 40%. Should these changes be made?

d. An order has been received from an overseas customer for 400 units to be delivered this month at a special discounted price of $80. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. If the offer is accepted, only 30% of variables expenses will be avoided. By how much would this special-order increase (decrease) the company's net operating income for the month?

e. X Co. is expecting to experience severe financial difficulties and has applied for a large guaranteed loan. As a condition for obtaining the guarantee, the Bank mandates that the company significantly reduce its break-even point. Highlight and discuss with examples all possible strategies and implications a company might consider to meet required conditions (500 words max).