Solution:

(a) Calculation of Sales and Variable cost:

Given,
Fixed cost = 4000
Breakeven sales = 20000
Profit = 1000
Selling price per unit = 20

Formula:
Breakeven sales = (Fixed cost / Contribution per unit)
Contribution per unit = Selling price per unit - Variable cost per unit
Profit = (Sales - Variable cost) - Fixed cost

Using the above formulas, we can calculate the sales and variable cost as follows:

Breakeven sales = 20000
Fixed cost = 4000
Contribution per unit = Selling price per unit - Variable cost per unit
20 - Variable cost per unit = Selling price per unit - Variable cost per unit
Variable cost per unit = 20 - Selling price per unit
Contribution per unit = Selling price per unit - (20 - Selling price per unit)
Contribution per unit = 2 * Selling price per unit - 20

Breakeven sales = (Fixed cost / Contribution per unit)
20000 = (4000 / (2 * Selling price per unit - 20))
Selling price per unit = 20

Breakeven sales = (4000 / (2 * 20 - 20))
Breakeven sales = 4000 / 0
Breakeven sales = Undefined

This means that the given information is inconsistent because the breakeven sales cannot be undefined.

(b) Calculation of New Break even point if selling price is reduced by 10%:

Given,
Selling price per unit = 20
Reduction in selling price = 10%

Formula:
New Breakeven sales = (Fixed cost / Contribution per unit)
Contribution per unit = Selling price per unit - Variable cost per unit

Using the above formulas, we can calculate the new breakeven point as follows:

Selling price per unit = 20
Reduction in selling price = 10%
New selling price per unit = 20 - (10% * 20)
New selling price per unit = 18

Contribution per unit = Selling price per unit - Variable cost per unit
20 - Variable cost per unit = 18 - Variable cost per unit
Variable cost per unit = 2

New Breakeven sales = (Fixed cost / Contribution per unit)
New Breakeven sales = (4000 / (18 - 2))
New Breakeven sales = 250

Explanation:

- The breakeven sales are the number of units that must be sold to cover all the fixed and variable costs of the business.
- In part (a), we calculated the contribution per unit, which is the amount that each unit sold contributes to covering the fixed costs and generating profits.
- Using the contribution per unit, we calculated the breakeven sales, which is the point at which the business is neither making a profit nor a loss.
- In part (b), we calculated the new breakeven point if the selling price is reduced by 10%.
- We first calculated the new selling price per unit by subtracting 10% from the original selling price.
- Using the new selling price per unit, we calculated the new contribution per unit and then the new breakeven sales.
- The new breakeven sales are lower than the original breakeven sales because the reduction in selling price has reduced the contribution per unit and therefore, more units need to be sold to