Cottage Industries Ltd (see Example 7.1) expects to sell 500 baskets a month. The business has the
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Cottage Industries Ltd (see Example 7.1) expects to sell 500 baskets a month. The business has the opportunity to rent a basket-making machine. Doing so would increase the total fixed cost of operating the workshop for a month to £3,000. Using the machine would reduce the labour time to half an hour per basket. The basket makers would still be paid £10 an hour.
(a) How much profit would the business make each month from selling baskets:
– without the machine; and – with the machine?
(b) What is the BEP if the machine is rented?
(c) What do you notice about the figures that you calculate?
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