Question

A company manufactures a single product. Budget and standard cost details for next year include:

Selling price per unit                                       Shs 2,400

Variable production cost per unit                   Shs 860

Fixed production costs                                   Shs 650,000

Fixed selling and distribution costs                Shs 230,400

Estimated sales commission per unit sold       5% of selling price

Sales and production units                              90,000 units

Required:

   i.            Calculate the break-even point in units.                                

 ii.    Calculate the percentage by which the budgeted sales can fall before the company begins to make a loss.                                                      

iii.    The marketing manager has suggested that the selling price per unit can be increased to Shs 2,500 if the sales commission is increased to 8 per cent of selling price and a further shs100,000 is spent on rent.                             

Required: Calculate the revised break-even point based on the marketing manager’s suggestion.