Question 3 Smallball shirts Ltd makes replica football shirts which it sells to clothes retailers for 25 per shirt. Retailers typically sell the shirts to consumers for 40 per shirt. Budgeted production for the forthcoming period is 200,000 shirts. Budgeted fixed overheads are 2.4 million. Variable cost per shirt is expected to be 66.50 . Retailers have started to use their buying power to force Smallball Ltd to allow discount against existing prices. The directors are concerned that they may lose business if they do not offer some sort of discounts to their customers and have asked a market research company for advice. The market research company suggested that Smallball Ltd need to reduce selling price charged to retailers by at least 10% if they are to retain their existing customers. The market research company suggested that Smallball Itd use its own supplier power to negotiate lower material prices to reduce variable cost per shirt by 5%. You are required to (i) Calculate the breakeven point in terms of units and sales revenue and the margin of safety based upon the existing selling price and variable cost per shirt. (10 Marks) Page 1 of 3 (ii) Calculate the breakeven point in terms of units and sales revenue and the margin of safety assuming the company decreases the selling price by 10% and reduces variable cost per shirt by 5% (10 Marks) (iii) Describe the underlying assumptions under which Cost Volume Profit information is prepared (10 marks)