The Sherston Brick Company manufactures a standard stone block for the building industry. The production capacity for the year is 100,000 standard blocks. The selling price per block is $1.60, variable costs are $0.60 per brick and fixed costs are $60,000 per annum.

Determine:

1.The break-even point in terms of sales revenue and output.

2.The margin of safety if sales amount to 90,000 bricks in the year.

The market for blocks becomes much more competitive, and Sherston Brick Company reduces its price to $1.50 per brick. Sales still decline to 80,000 bricks, whilst costs rise relentlessly. Variable costs rise to $0.66 per brick and rises in business taxes and other contributions increase fixed costs to $80,000 per annum.

3.Is the firm still profitable?