A firm producing a single product sells everything which it produces. Fixed costs are £4 000, variable costs per unit are £0.40 and selling price per unit is £0.80.

Required:

(a) Draw a break-even chart to show costs and revenues at output levels of 5 000, 10 000, 15 000, 20 000 and 25 000 units. (S marks)

(b) Show clearly the break-even point, the angle of incidence and the margin of safety at an output of 25 000 units. (3 marks)

(c) Calculate the break-even output if:

(i) prices increase by 10 per cent (2 marks)

(ii) prices remain at £0.80 per unit, but fixed costs increase by 5 per cent. (2 marks)

(d) Briefly outline the limitations of break-even charts as management tools.