Question 1.

The management of Zenith plc are to assemble a new computer aimed at the business market. The forecast cost structure for producing this new computer is as follows:

Materials Component A

$150 per unit.

Materials Component B

$300 per unit.

Labour

Labour is paid on a piecework basis of $100 per unit.

Fixed Overheads

For activity between zero and 80,000 units per annum the expected cost is $5.8 million.

Sales

It is expected that the selling price will be $710 per computer.

Required:

1. Determine the profit when producing 0, 30,000, 40,000, and 80,000 units per annum.

2. Calculate the break-even point.