Kibos Company Ltd. is a manufacturing company which produces and sells a single product known as T, at a price of Sh.10 per unit. The company incurs a variable cost of Sh.6 per unit and fixed costs of Sh.400,000. Sales are normally distributed with a mean of 110,000 units and a standard deviation of 10,000 units. The company is considering producing a second product, T? to sell at Sh.8 per unit and incur a variable cost of Sh.5 per unit with additional fixed costs of Sh.50,000. The demand for T2 is also normally distributed with a mean of 50,000 units and standard deviation of 5,000 units. If T2 is added to the production schedule, sales of T will shift downwards to a mean of 85,000 units and standard deviation of 8,000 units. The correlation coefficient between sales of T1 and T2 is -0.9.
Required:
iThe company's break-even point for the current and proposed production schedules.(7 marks)
ii The coefficient of variation for the two proposals.(8 marks)
iii Based on your computation's in (i) and (ii) above advise the company on whether to add T? to its production schedule.(2 marks)