Self-test X Ltd manufactures biscuits. These are sold at £20 per box. The monthly turnover is 200 boxes and the company wishes to increase sales.

If they reduce the selling price to £18 then it is anticipated that sales will increase to 450 boxes per month. The sales director believes that if the selling price is further reduced to £17 per box then sales could be 600 boxes per month.

The following budget is prepared for 200 boxes:

Direct material 1,000 Direct labour 1,500 Selling and distribution costs 600 Fixed overheads 700 Total costs 3,800 You are required to prepare for each of the above scenarios:

(i) the profit or loss;

(ii) the break-even point.

Recommend which policy should be adopted.