Break-even Analysis [20 marks]

Note: In order to achieve full marks for this question it is essential that you fully explain what you are doing, why you are doing it and the steps involved in providing a final solution. Ensure your answer is not just a set of calculations as marks for this question are set aside for your explanation. (6 marks for presentation and explanation)

a. [4 marks]

You are given the following data from a company for two successive periods.

	Jan.	Feb.
Production Cost	$120,000	$90,000
Wage	$472,000	$247,000
Overheads	$418,000	$213,000
Production levels	12,000 units	9,000 units

All production is sold for $100 per unit. Determine the break-even point for this company.

b. [10 marks]

Frances Newbody is facing a decision. She has to select a suitable mobile phone plan for her business. She is considering two options. The prepaid plan charges 20 cents per minute, whereas if she agrees to a one-year contract, she will have to pay a monthly service fee of $30. The service fee includes 150 free minutes per month and any excess charges are at 5 cents per minute.

Required: At how many minutes per month is the cost of the two options the same?

• Provide a clear explanation of your findings.

• In addition ensure when answering this question provide algebraic and graphical solutions.

• Using an EXCEL graph is necessary. On your graph, identify the region corresponding to the prepaid plan being preferred and the region corresponding to the contract plan being preferred.

  EXCEL Instructions: Create a column called Number of minutes and in that column enter values from 0 to 400 in increments of 20. Then create two more columns, one for Prepaid Plan and another for Contract. Enter appropriate formulae in EXCEL to obtain the cost of each plan corresponding to each value in the Number of minutes column. Highlight the resulting three sets of numbers and go to InsertChartsScatter to obtain a graph. Make sure that your graph has been labelled appropriately (i.e. title, axis labels, legend) and that your chart title includes your network ID. Refer to Topic 3 in the EXCEL Booklet for further instructions on entering formulae and graphing in EXCEL.