Hamood Plumbing Co. estimates that variable costs will be 70% of sales and fixed costs will total OMR 2,160,000. The selling price of the product is OMR 10, and 750,000 units will be sold.

Instructions

Using the mathematical equation,

(a) Compute the break-even point in units and Omani Riyals.

(b) Compute the margin of safety in Riyals and as a ratio.

(c) Compute net income.

Problem 2

Ibri, Inc. owns a machine that produces baskets for the gift packages the company sells. The company uses 900 baskets in production each month. The costs of making one basket is OMR 4 for direct materials, OMR 3 for variable manufacturing overhead, OMR 2 for direct labor, and OMR 5 for fixed manufacturing overhead. The unit cost is based on the monthly production of 900 baskets. The company determined that 30% of the fixed manufacturing overhead is avoidable if purchased externally. Al Barka Co. has offered to sell Ibri the baskets for OMR 13 each, and can supply all the units it needs.

Instructions

Should Ibri Co. make or buy the baskets? Show your calculations.