A manufacturer is considering a new product which could be produced in one of the two quantities: Standard or De Lux. The following estimates have been made.

At the proposed selling prices, market research indicates the following deman:

Required

1. Calculate the expected unit sales, expected profits and margin of safety for each quality.
2. Using the appropriate measure of risk, advise management which quality should be launched. 

 

Unit Labour cost Unit Material cost Unit packaging cost Proposed selling price per unit Budgeted Fixed cost per unit 0-99 999 units 100 0000 and above Standard R2 R1.50 R1 R7 De Lux R2.50 R2 R2 R10 R200,000 R250,000 R350,000 R400,000