Question

1. Clover Co are manufacturing and selling commercial vacuum cleaners. They have gathered following expected information for the year 2020:

Selling price (per unit)	£425.00
Direct materials (per unit)	£105.00
Direct labour (per unit)	£56.00

Other costs are estimated for the year 2020 based on the expected sales of 92,000 units. These costs are given below:

		Fixed Costs	Variable Costs
Operating Costs		1,150,000	6,450,000
Marketing Costs		240,000	8,200,500
Storage Costs		80,000	942,000
Administration Costs		550,000	-

For the year 2020, showing all your working clearly, you are required to calculate:

1. the expected profit or loss                                      

2. breakeven point in units and sales revenue

                       

3. margin of safety in units and % change

                                   

4. the profit/loss if the selling price is increased to £450 and sales quantity decreases by 20%    

                                                                                   

5. the revised break-even point in units for (d)

6. explain the importance of computing break-even point for a Clover Co.

                                   

(Total 60 marks)

Answer 1