Question $2$

O'Brien Ltd manufactures door handles. $.$

The following is the proposed annual budget for the coming year:

The monthly production and sales units are $4,000.$

You are required to calculate the following:

a$)$ Contribution for the year

b$)$ Contribution per unit.

c$)$ Contribution $/$ Sales ratio

d$)$ Break$-$even point in units

e$)$ Margin of safety $\%$

f$)$ Sales revenue that will yield a profit of $1,440$

$(12$ marks$)$

Each question carries equal marks

g$)$ Explain the term 'Fixed Cost' in relation to a production budget.

$(2$ marks$)$

h$)$ Give one example of a 'Fixed Cost' that O'Brien Ltd might incur.

$(2$ marks$)$

i$)$ Prepare a clearly labelled breakeven chart, showing the break$-$even point, margin of

safety and expected profit.

j$)$ The management of are trying to decide whether to make or buy the packaging in which

the door handles are wrapped for delivery.

Note and explain any four qualitative factors that would need to be considered before

making any decision.