KABUBI Co ltd has recently developed a personal music player and is now considering what price to charge for the new product. A market research company has produced the following forecasts of demand at three potential selling prices:

Selling prices K100 K200 K300

Sales units/annum 10 000 8 000 6 000

Fixed costs/annum K80 000 K50 000 K20 000

Variable costs are forecast at K40 per unit at any activity level.

REQUIRED

Calculate for each,

the Break - even point in Units and in Revenue,

the Margin of Safety and

the budgeted profit (Targeted Profit) (10)

QUESTION Five

An audit senior at your place has requested you to undertake a review of the clients inventory system by determining the critical inventory levels, economic order quantity, cost of issues and valuation of closing inventory. The client file contains the following schedules in relation to inventory:

Minimum Usage - 500 units per working week

Maximum Usage - 3000 units per working week

Average usage - 2500 units per week

Lead time - 10 20 days

Ordering costs - K260 per order

Purchase cost - K5 per unit

Holding cost - 8% of purchase costs per year

Required

Calculate the following:

Inventory re-order level (2 marks)

Minimum inventory level (2 marks)

Economic order quantity (4 marks)

Maximum inventory levels (2 marks)