Self-test Nathan Ltd manufactures Kiddie Kites (their sole product). Several new competitors have entered the market for kites, and the market price for Kiddie Kites has fallen by £5.50 to £23.50 per unit.

You are required to advise the directors as to whether it is worthwhile for them to continue production of Kiddie Kites, bearing in mind that they require a minimum return on capital employed of 16 per cent. The capital employed by Nathan Ltd is, at present, £130,000. The company considers that there is an expected demand of 30,000 units.

In order to provide this advice, you are given the following information relating to the unit costs of Kiddie Kites:

Materials 4.80 Direct labour 3.15 Other factory variable costs 0.60 Variable selling costs 0.75 Total fixed costs £63,750