Intermediate: Breakeven chart with an increase In fixed costs and incorporating expected values A manufacturer is considering

Question:

Intermediate: Breakeven chart with an increase In fixed costs and incorporating expected values A manufacturer is considering a new product which could be produced in one of two qualities- Standard or De Luxe. The following estimates have been made:

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At the proposed selling prices, market research indicates the following demand

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You are required

(a) to draw separate breakeven charts for each quality, showing the break-even points; (7 marks)

(b) to comment on the position shown by the charts and what guidance they provide for management; (3 marks)

(c) to calculate, for each quality, the expected unit sales.
expected profits and the margin of safety; (3 marks)

(d) using an appropriate measure of risk, to advise management which quality should be launched.

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