A friend of yours is about to set up in business manufacturing and selling virtual reality jogging machines that will give users the perception that they are jogging through the countryside. The following information relates to the costs of producing 3500 jogging machines per year:

Although these figures are based on the production of 3500 machines, production capacity is 4000 machines per annum. The budgeted selling price is £280 per machine.

Following discussion with your friend, you ascertain that £207,000 of labour costs, 100% of administration overhead, 30% of production overhead and 50% of selling and distribution overhead are fixed in nature. All other costs are variable with the level of production.

(a) Calculate the unit contribution of a jogging machine and the total contribution of the budgeted level of production and sales.

(b) Calculate the amount of profit at the budgeted level of production.

(c) Construct a break-even chart, clearly showing the break-even point in units, the margin of safety and the budgeted level of production.

Transcribed Image Text:

Material costs 260,000 Labour costs 320,000 Production overhead 160,000 Selling and distribution overhead 150,000 Administration overhead 60,000