BREAK-EVEN ANALYSIS

Question 8 (a) Perfect Silver makes and sells a standard model of watches to local businesses for RM150 each. Next year Perfect Silver plans to make and sells 2,000 watches. The costs information are as follows: Manufacturing: Direct material Direct labour Fixed cost Administration and selling: Variable Fixed cost Required: i. ii. RM42 per unit RM28 per unit RM57,000 per year iii. RM15 per unit RM23,000 Calculate the break-even point for next year, expressed in quantity and sales value. (4 marks) Calculate the margin of safety for next year expressed in quantity. (2 marks) Draw a break-even chart showing the total cost line, sales line, fixed cost line, break- even point, profit and loss area and margin of safety. (3 marks) (TOTAL: 15 marks)