Cottage Industries Ltd produces baskets. The fixed cost of operating the workshop for a month totals 500$. Each basket requires material that cost 2$, and it takes 1 hour to make each basket. Cottage Industries pays the basket maker 10$ per hour. The basket makers are all on contracts such that if they do not work for any reason, they are not paid. The baskets are sold to a wholesaler for 14$ each.

Cottage Industries expects to sell 500 baskets a month. The business has the opportunity to rent a basket-making machine. Doing so, would increase the total fixed cost of operating the workshop for a month to $3.000. Using the machine would reduce the labour time to half an hour per basket. The basket makers would still be paid 10$ an hour.

a) How much profit would the business make each month from selling baskets?

- Without the machine?

- With the machine?

b) What is the BEP if the machine is rented?

- Prepare a revenue and cost schedule.

c) What do you notice about the figures that you calculate?