Question $2.$

Leahy Ltd$.$ has the following costs when normal sales and production levels were

achieved:

The normal sales quantity is $4,000$ units at a sales price of $14$ each. However,

the company has the production capacity to sell up to $5,200$ units. The

management is considering the following options for the coming period:

Reduce the sales price to $12\mathrm{.}50$ per unit, increase the sales quantity to

$5,200$ units. The fixed overheads would increase by $1,800.$

Increase the sales price to $16$ per unit at which $3,200$ units can be sold.

Continue with the current sales level and price.

Spend $7,000$ on advertising. The current sales price remains the same

but sales quantity would increase by $25\%.$

Calculate the Break Even Point, Margin of Safety and the Profits$/$Losses for each

option. Recommend the most profitable option and any other relevant matters

which may affect your decision.

Total $(50$ marks$).$