Preparation of a break-even chart with step fixed costs Toowomba manufacturers various products and uses CVP analysis to establish the minimum level of production to ensure profitability.

Fixed costs of £50000 have been allocated to a specific product but are expected to increase to £100000 once production exceeds 30000 units, as a new factory will need to be rented in order to produce the extra units. Variable costs per unit are stable at £5 per unit over all levels of activity. Revenue from this product will be £7.50 per unit.

Required:

(a) Formulate the equations for the total cost at:

(i) less than or equal to 30000 units;

(ii) more than 30000 units.

(2 marks)

(b) Prepare a break-even chart and clearly identify the break-even point or points.

(6 marks)

(c) Discuss the implications of the results from your graph in

(b) with regard to Toowomba’s production plans.

(2 marks)

ACCA Paper 1.2 - Financial Information for Management