M plc makes two products - M1 and M2 budgeted details of which are as follows:

Budgeted production and sales for the year ended 31 December are:

The fixed overhead shown above comprises both general and specific fixed overhead costs. The general fixed overhead cost has been attributed to units of MI and M2 on the basis of direct labour cost. The specific fixed cost totals 2500 per annum and relates to product M2 only.

(a) Both products are available from an external supplier. If M plc could purchase only one of them, the maximum price which should be paid per unit of M1 or M2 instead of internal manufacture would be:

(b) If only product M1 were to be made, the number of units to be sold to achieve a profit of 50 000 per annum (to the nearest unit) would be A 4074; B 4537; C 13333; D 13 796; E none of the above.

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M1 M2 () () Selling price 10.00 8.00 Costs per unit: Direct materials 2.50 3.00 Direct labour 1.50 1.00 Variable overhead 0.60 0.40 Fixed overhead 1.20 1.00 Profit per unit 4.20 2.60