A summary of Goshen Ltd a manufacturing companys budgeted profit statement for its next financial year, when it expects to be operating at 75 percent of capacity, is given below.

GH GH

Sales 9,000 units at GH 32 288,000

Less:

Direct materials 54,000

Direct wages 72,000

Production overhead fixed 42,000

Variable 18,000

It has been estimated that:

(I) If the selling price per unit were reduced to GH28, the increased demand would utilize 90 percent of the companys capacity without any additional advertising expenditure.

(ii) To attract sufficient demand to utilise full capacity would require a 15 percent reduction in the current selling price and a GH 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 and comment