Part A Watson Ltd manufactures a product called Duffy. The normal annual output of this product is 200,000 units. The following is a cost statement relating to the production of Duffy :- $ $ 5.00 7.00 4.50 1.00 5.50 Material Wages Factory overheads Fixed Variable Administration overheads Fixed Selling overheads Fixed Variable 2.00 3.50 3.00 6.50 26.00 The selling price of a Duffy is $36 During the year the company received enquiries about two possible special orders each involving the production of 2,000 units. One enquiry related to the production of a Super Duffy (Ref. No. 555) and the other to a Premier Duffy (Ref. No. 655). Due to normal production commitments only one of these possible orders could be handled in the factory. The conditions of order (Ref. No. 555) are that the variable costs will increase by 25 per cent but the selling price cannot exceed $25.00 per unit. The conditions relating to order (Ref. No. 655) are that variable costs will decrease by 25 per cent but the selling price will be $19.00 per unit. Required (a) A computation of the break-even point of normal trading in terms of: (i) sales revenue; (1 Mark) (ii) units produced; (1 Mark) (iii percentage of normal capacity (assume all units sold) (1 Mark) BED Fixed (1 Variable (b) What profit would be earned in normal trading if (i) the selling price was increased to $40 per unit and output restricted to 160,000 units (4 Marks) (ii) the selling price was reduced to $28 per unit and output increased to 260,000 units (4 Marks) (c) Advise the board as to which of the two special orders should be accepted Computations must be shown and a reason given for the choice made