The following information applies to a company operating in Chilanga. It is the operational results for the year just ended, 2019.

The company, which manufactures a single product coded 'zeron' , achieved a sales value of K8.000.000 for the period under consideration. A unit of 'zeron' was being sold at K20. During the period under review, the company operated at 80% capacity. Suggestions are being made to increase the operating capacity. Details of the cost structure are hereby given:

Direct material K4

Direct labour K4

Variable production overhead K80,000

Variable selling overhead K160,000

Variable distribution overheadK120,000

Fixed production overheadK320,000

Fixed selling overheadK180,000

Fixed distribution overheadK80,000

Fixed administration overheadK1,440,000

Further , sales agents are paid a commission of 5% on sales value for selling 'zeron'.

Required

(a) Compute the company's breakeven point in sales value.

(b) Prepare income statements, given three scenarios depicted hereunder:

Scenario 1

At the present level of sales

Scenario 2

If the unit selling price is reduced by 5% which should increase sales volume by 12.5%

Scenario 3

If the unit selling price is reduced by 10% which should increase sales volume by 25%

Comment on scenario three above which will stretch the capacity limit