Scarcity Enterprise makes three products, AL, BE and OM. The following information was provided in order to do a cost, volume, profit analysis.

AL BE OM

$ $ $

Selling price 180 270 240

Less Variable Expenses:

Direct materials 24 72 32

Other variable expenses 102 90 148

Total variable expenses 126 162 180

Demand (units) 500 500 500

Total fixed cost $721,500

Required:

I. Advise management on the amount of each product to manufacture to break-even. Show all workings. [11 marks]

II. Calculate the amount of each product to manufacture to make a profit of $111,000 before tax. Show all workings. [6 marks]

III. List three assumptions of CVP [3 marks]

IV. Explain the term margin of safety and state three ways in which it can be expressed.

[4 marks]