Kit 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 K250 K350 K450

Sales units/annum 10,000 8,000 6,000

Fixed costs/annum K800,000 K500,000 K200,000

Variable costs are forecast at K220 per unit at any activity level.

REQUIRED

1. Calculate for each potential selling price, the budgeted profit, The Breakeven point in units and the margin of safety
2. Using a graph paper, draw and label a Breakeven chart for a selling price of K350 for activity levels between 0 and 8,000 units
3. Define target costing and explain briefly how it could be used by Kit Co Ltd in the design, manufacture and sale of the personal music players