Beachy DAC has developed a new range of high quality affordable sandals for beachwear. The sandals are based on an innovative design that protects feet from the effects of sun, salt and sand. The company has already received some sales orders for the sandals and production is due to commence next month. The management accountant has prepared the following projections for the trading year ahead: REQUIREMENT: (a) Calculate the break-even point in units (pairs of sandals) and revenue. (5 marks)

(b) Calculate the margin of safety in units (pairs of sandals) and revenue. (5 marks)

(c) How many pairs of sandals must Beachy DAC sell to make a profit of 1,500,000? (5 marks)

(d) Beachy DAC is considering changing the basis of paying staff from a fixed time basis to a piece rate system. Under the new system employees will be paid 4.25 per pair of sandals produced. If the company introduces this new system it will have to employ an extra production supervisor who will be paid a salary of 60,000 per year.

Assuming that the company implements the new pay system:

(i) What is the new break-even point in units (pairs of sandals)? (5 marks)

(ii) How many pairs of sandals must be sold to achieve the current level of profit (i.e. 1,002,500)? (5 marks)

(iii) Which of the pay systems (fixed time or piece rate) would you recommend for the company? Give reasons for your answer.

Notes: 1. It is assumed that the company will pay workers based on a fixed time basis i.e. hours worked regardless of output achieved. 2. The production, administration, and selling and distribution costs have been analysed and the cost behaviour is shown below: Notes: 1. It is assumed that the company will pay workers based on a fixed time basis i.e. hours worked regardless of output achieved. 2. The production, administration, and selling and distribution costs have been analysed and the cost behaviour is shown below