Braithwaite Ltd manufactures and sells a single product. The following data have been extracted from the current year’s budget: 

The company’s production capacity is not being fully utilised in the current year and three possible strategies are under consideration. Each strategy involves reducing the unit selling price on all units sold with a consequential effect on the budgeted volume of sales. Details of each strategy are as follows:

The company does not hold stocks of finished goods. 

Required

1. Calculate for the current year: 

a. The selling price per unit for the product; and 

b. The weekly sales (in units).

2. Determine, with supporting calculations, which one of the three strategies should be adopted by the company in order to maximise weekly profits. 

3. Briefly explain the practical problems that a management accountant might encounter in separating costs into their fixed and variable components.

Transcribed Image Text:

Contribution per unit £8 Total weekly fixed costs Weekly profit Contribution to sales ratio £10 000 £22 000 40%