[Question 1]

Braham Ltd manufactures a computer stand. It has fixed costs of $500,000 and each stand sells for $120, with a variable cost of $70 per unit. The factory has a maximum capacity of 20,000 units and it anticipates selling 15,000 units each period. Construct the break-even chart for the business, showing the break-even point, and the margin of safety.

[Question 2]

Happy Feet buys hiking socks for $6 a pair and sells them for $10. Management budgets

monthly fixed costs of $12,000 for sales volumes between 0 and 12,000 pairs.

Requirements

Consider each of the following questions separately by using the foregoing information

each time.

1. Calculate the breakeven point in units. (4 marks)

2. Happy Feet reduces its selling price from $10 a pair to $8 a pair. Calculate the

new breakeven point in units. (4 marks)

3. Happy Feet finds a new supplier for the socks. Variable costs will decrease by

$1 a pair. Calculate the new breakeven point in units. (4 marks)

4. Happy Feet plans to advertise in hiking magazines. The advertising campaign.

will increase total fixed costs by $2,000 per month. Calculate the new breakeven point in units. (5 marks)

5. In addition to selling hiking socks, Happy Feet would like to start selling sports socks. Happy Feet expects to sell one pair of hiking socks for every three pairs of sports socks. Happy Feet will buy the sports socks for $4 a pair and sell them for $8 a pair. Total fixed costs will stay at $12,000 per month. Calculate the breakeven point in units for both hiking socks and sports socks. (8 marks)