3.4 If there is a scarce resource that is restricting sales, how will the business maximise its profit? Explain the logic of the approach that you have identified for maximising profit.

3.1 Motormusic Ltd makes a standard model of car radio, which it sells to car manufacturers for £60 each. Next year the business plans to make and sell 20,000 radios. The business’s costs are as follows:
Manufacturing Variable materials £20 per radio Variable labour £14 per radio Other variable costs £12 per radio Fixed cost £80,000 per year Administration and selling Variable £3 per radio Fixed £60,000 per year Required:

(a) Calculate the break-even point for next year, expressed both in quantity of radios and sales value.

(b) Calculate the margin of safety for next year, expressed both in quantity of radios and sales value.
3.2 Lannion and Co. is engaged in providing and marketing a standard advice service.
Summarised results for the past two months reveal the following:
October November Sales (units of the service) 200 300 Sales revenue (£) 5,000 7,500 Operating profit (£) 1,000 2,200 There were no price changes of any description during these two months.
Required:

(a) Deduce the BEP (in units of the service) for Lannion and Co.

(b) State why the business might find it useful to know its BEP.

Required:

(a) Prepare the statement, with explanations, showing the greatest profit available from the limited amount of skilled labour available, within the constraint stated. ( Hint : Remember that all labour is paid at the same rate.)

(b) What steps could the business take in an attempt to improve profitability, in the light of the labour shortage?