Question
A summary of a manufacturing companys budgeted profi t statement for its next financial year, when it expects to be operating at 75 per cent
A summary of a manufacturing companys budgeted profi t statement for its next financial year, when it expects to be operating at 75 per cent of capacity, is given below. Sales 9,000 units at 32 288,000 Less: direct materials 54,000 direct wages 72,000 production overhead fixed 42,000 variable 18,000 186,000 Gross profit 102,000 Less: admin., selling and distn costs: fixed 36,000 varying with sales volume 27,000 63,000 Net profit 39,000 It has been estimated that: (i) if the selling price per unit were reduced to 28, the increased demand would utilise 90 per cent of the companys capacity without any additional advertising expenditure; (ii) to attract suffi cient demand to utilise full capacity would require a 15 per cent reduction in the current selling price and a 5,000 special advertising campaign. You are required to : (a) calculate the breakeven point in units, based on the original budget; (b) calculate the profits and breakeven points which would result from each of the two alternatives and compare them with the original budget.
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