12.4# Moolah Limited manufactures garden chairs. The company’s management is preparing a budget for the next financial year and has prepared the following information:

£

Selling price per garden chair 40 Materials per garden chair 15 Direct labour per garden chair 10 Overheads: variable per garden chair 5 Fixed overheads (total) £60,000 p.a.

The company is planning to manufacture 12,000 garden chairs in the next year.

(a) Prepare a break-even chart showing the above information. Indicate on the chart:

(i) The break-even point

(ii) The margin of safety

(iii) The profit or loss if 10,000 garden chairs are manufactured and sold.

(b) Moolah Limited is considering whether to make a de-luxe chair, which would have the same costs as the ‘ordinary chair’ with the exception of an additional

£5 per chair for quality upholstering. An advertising campaign costing £11,000 would also be needed. The selling price could be increased to £46 per chair.

This order would be within the capacity of the company. Advise the company whether the ‘de-luxe’ chair should be manufactured.