Intermediate: Calculation of break-even points based on different product mix assumptions PE Limited produces and sells two products, P and E. Budgets prepared for the next six months give the following information:

(a) You are required, in respect of the forth¬ coming six months, (i) to state what the break-even point in £s will be and the number of each product this figure represents if the two products are sold in the ratio 4P to 3E; (3 marks)
(ii) to state the break-even point in £s and the number of products this figure repre¬ sents if the sales mix changes to 4P to 4E (ignore fractions of products); (3 marks)
(iii) to advise the sales manager which product mix should be better, that in

(a) (i) above or that in

(a) (ii) above, and why; (2 marks)
(iv) to advise the sales manager which of the two products should be concentrated on and the reason(s) for your recommenda¬ tion - assume that whatever can be made can be sold, that both products go through a machining process and that there are only 32 000 machine hours available, with product P requiring 0.40 hour per unit and product E requiring 0.10 hour per unit. (2 marks)

(b) You are required to compare and contrast the usefulness of a conventional break-even chart with a contribution break-even chart. Your explanation should include illustrative dia¬ grams drawn within your answer book and not on graph paper.

LO1

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per unit Product P Product E per unit Selling price 10.00 12.00 Variable costs: production 5.00 10.00 and selling Common fixed costs: 561 600 production and selling for six months