QUESTION ONE

Bernie ltd. is a newly organized manufacturing business that plans to manufacture and sell 100,000 units

per year of a new product. The following estimates have been made of the company's costs and

expenses (other than income taxes):

Variable

Fixed per Unit

Manufacturing costs:

Direct materials 50

Direct labor 40

Manufacturing overhead Sh. 600,000 10

Period expenses:

Selling expenses 25

Administrative expenses 400,000 ____

Totals Sh.1,000,000 Sh.125

Required:

a. What should the company establish as the sales price per unit if it sets a target of earning an

operating income of Sh.400, 000 by producing and selling 100,000 units during the first year of

operations? (8 marks)

b. At the unit sales price computed in part a, compute the breakeven point. (6 marks)

c. Compute the margin of safety if the company produces and sells 100,000 units at the sales price

computed in part a? (4 marks)

d. Assuming a tax rate of 25% and the selling price computed at a, compute the sales revenue required

to earn an after tax profit of Sh.375, 000. (7 marks)