The launch of a new product is under consideration. Its unit variable costs will be 30 and it is estimated that incremental fixed costs of 250,000 will be incurred if production is commenced. Forecast sales are 50,000 units. At what level of price for the new product will the organisation break even? If the actual planned selling price is 48 per unit, what will be the organisations margin of safety?

The following information is about two organisations, A and B.

	Organisation A	Organisation B
Fixed costs	60,000	12,000
Variable costs per unit	0.20	0.50
Unit selling price	0.60	0.60
Expected sales levels (units)	160,000	160,000

Required:

Which firm has higher operating gearing?

What is the expected net income of both firms?

What would expected net income be for both firms if sales were a) 140,000 units and b) 180,000 units?

Which firm is facing more risk in terms of its current sales predictions?

Be sure to demonstrate your numerical workings.PLease explain where possible