Q 40

Quencher Limited is planning to produce mineral water. It is contemplating to purchase a plant with a capacity of 100,000 bottles a month. For the first year of operation the company expects to sell between 60,000 to 80,000 bottles. The budgeted costs at each of the two levels are as follows:

GHS

Particular 60,000 bottles 80,000 bottles

Material 360,000 480,000

Labour 200,000 260,000

Factory overheads 120,000 150,000

Administration expenses 100,000 110,000

The production would be sold through retailers who will receive a commission of 8% of sale price

Required

a) Compute the break-even point in GHS and units, if the company decides to fix the sales price at GHS16 per bottle.

b) Compute the break-even point in units, if the company offers a discount of 10% on purchase of 20 bottles or more, assuming that 20% of the sales will be to buyers who will avail the discount.