Clean-it Pic makes washing machines and with its existing plant capacity the maximum production possible is 1000 units per year.

Fixed costs are estimated at £18 000 per annum and the selling price of each machine is £120. Sales for the next year are expected to drop to 800 units.

The cost of each washing machine is calculated as follows:

Direct material cost £20 Direct labour cost 10 hours at £4 per hour

(a) Calculate (i) the hrcakeven point, (ii) the maximum profit and (iii)

the profit at an estimated sales level of 800 units.

(b) Costs alter by the following proportions:

Direct materials increase by 20%
Fixed costs come down by £6000 PROBLEMS FOR DISCUSSION AND ANALYSIS 245 Direct labour costs increase by £1 per hour What will be (i) the new breakeven point and (ii) the new profit at the estimated sales level of 800 units?