Explain the impact these changes to budget assumptions is likely to have on the risk of Gaelar ltd making a loss and suggest steps the company could take to reduce the risk of making a loss. (350 words)

Question One: Gaelar Ltd is an Edinburgh based company that manufacture a special type of hybrid violin called Scottish Best violin. As a management consultant, you have been hired to review the profitability of the company. The costs for each "Scottish Best violin are as follows: Direct materials 300 Direct labour cost (each violin takes 5 hours) 150 Other variable manufacturing costs 70 Annual fixed costs 750,000 Demand for the Scottish Best violin is growing and the company expects to produce and sell 3,000 units at a selling price of 800 next year. However following a recent review of wages paid by competitors, Gaelar ltd have agreed to increase hourly wages for its production staff to 34 to avoid losing skilled staff. They also forecast that annual fixed costs will increase to 800,000. Consequently they have decided to increase the selling price by 6%, but this has reduced the sales forecast to 2,800 violins. Other costs are expected to remain the same. Required