The following data relates to Silicon Ltd for the year 31 December 2022:

Sales Sh.24,000,000

Less: Total costs Sh.20,000,000

Net profit Sh.4,000,000

Fixed costs account for 40% of the total costs.

Required:

Margin of safety (2marks)

Break-even point in sales (2marks)

Sales required to earn profit of Sh6,000,000 (2marks)

In order to increase sales, the management has the following two options;

To increase sales by 25% on incurring a sale promotion cost of Sh.2,500,000

To increase sales by 15% on reducing selling price by 5%

Required: Advise the management on which option they should take