The following budgeted profit and loss account is available in respect of Nitty-and-Gritty Ltd. Particulars $ Sales 160000 units 960000 Direct material 320000 Direct labor 240000 Production overhead 325000 Profit 75000 Production overheads include $125 000 of fixed cost. An alternative manufacturing method is also available, which would reduce labor cost per unit by half, but increase fixed overheads by $60 000. Required: a) Calculate the break-even point in units for the original production method using the contribution margin method. (2 marks) b) Calculate the break-even point in units for the original production method using the equation method. (2 marks) c) Calculate the break-even in sales value for the original production method. (1 mark) d) Calculate the margin of safety in units and why this is important? (3 marks)

e) Calculate how many units need to be sold to make $125 000 profit for the original production method. (2 marks) f) Calculate the break-even in units for the alternative method of production. (2 marks) g) Briefly discuss the relative merits of the two alternative production methods. Which method would you suggest? (3 marks)

Time -15 minutes