SmartSolution Ltd has decided to launch a new type of high-tech vacuum cleaner. The company should make a decision whether to manufacture it using a labour-intensive or capital-intensive production line. The product has the following cost structure for every line.

	Labour intensive	Capital intensive
Direct labour	56	28
Direct material	34	34
Variable overheads	8	6

Each cleaner will be sold for 135, and the annual fixed cost for the labour-intensive model is 131,150 while it is 287,400 for the capital intensive model of production.

All the direct costs are considered variable costs.

Required

For each production line:

a) Calculate both the number of units (to the nearest unit) and the revenue the company needs to break even.

(4 marks)

b) If budgeted sales are 4,500 units, what is the margin of safety expressed as a percentage?

(2 marks)

c) Calculate the company profit in the following cases:

i) SmartSolution achieved the budgeted sales, 4,500 units.

2. SmartSolution achieved higher sales by 17% of the budgeted sales.

3. SmartSolution achieved lower sales by 17% of the budgeted sales.

(7 marks)

d) SmartSolution would like to make a profit of 120,000 per annum. How many vacuum cleaners do they need to sell annually to achieve this target profit?

(2 marks)

e) Write a report to the Directors of SmartSolution commenting on your answers in a), b), c), & d) above.

(5 marks)

f) In order to have reliable results from Break-even analysis, few assumptions must be met. Evaluate and discuss those assumptions.

(5 marks)