Question A summary of a manufacturing company's budgeted profit statement for its next financial year when it expects to be operating at 75 per cent of capacity, is given below. K 288,000 Sales 9,000 units at K32 Less direct materials direct wages production overhead - fixed - variable 54,000 72,000 42,000 18,000 186,000 102,000 Gross profit Less: admin., selling and dist'n costs: fixed 36,000 varying with sales volume 27,000 63,000 39,000 Net profit It has been estimated that: (1) if the selling price per unit were reduced to K28, the increased demand would utilise 90 per cent of the company's capacity without any additional advertising expenditure; (ii) to attract sufficient demand to utilise full capacity would require a 15 per cent reduction in the current selling price and a K5,000 special advertising campaign. You are required to: (a) calculate the breakeven point in units, based on the original budget (b) calculate the profits and breakeven points which would result from each of the two alternatives and compare them with the original budget. (c) Discuss the limitations of breakeven of CPV analysis