Question 6.3 Caring Products Ltd sold 180 000 units of its product last year at a price of £20 each, out of a total production of 20 000 units, the capacity of the plant. Variable costs of production amount to £14 (£10 for manufacturing and £3 for selling).

Fixed costs amounted to £500 000 for manufacturing costs and £292 000 for administrative costs, and were incurred evenly throughout the year.

Calculate the following:

profit for the year;

break even point in terms of units and sales value;

margin of safety at which the company is operating.

If labour costs amount to 50 per cent of variable costs and 20 per cent of fixed costs, calculate the changed break even point if wages are increased by 10 per cent.