Fripple Limited manufactures coats. The company’s management is preparing a budget for the next financial year and has prepared the following information:

£

Selling price per coat 100 Materials per coat 25 Direct labour per coat 30 Overheads: variable per coat 5 Fixed overheads (total) £240,000 p.a.

The company is planning to manufacture 16,000 coats in the next year.

(a) Calculate by formula, showing your workings:

(i) The maximum profit if all coats are sold

(ii) The break-even point (number of coats)

(iii) The margin of safety (number of coats)

(iv) The profit or loss if 11,000 coats are manufactured and sold.

(b) Prepare a cost/volume chart showing all the information calculated in

(a) above.

(c) A supermarket chain has approached Fripple Limited with a view to placing a special order for 5,000 coats bearing a prominent advertisement, but is only prepared to pay £70 per coat. The additional cost of embroidering the advertisement would be £6 per coat. This order would be within the capacity of the company and fixed costs would remain unchanged. Should Fripple Limited accept the order?