Bianca, a sole trader, owns and manages a business which manufactures and sells one special type of garden furniture for garden centres.

Set out below is the sales revenue and profit for 2021.

Year2021 Sales Profit

372,424 150,268

In 2021 the business manufactured and sold 98,000 units and had fixed costs of 132,670. All other costs were variable.

a.Calculate the selling price and variable cost per unit for 2021. (Answers should be to the nearest penny. Any figures used in further answers to this question should be rounded numbers.)

Selling price per unit equals sales income divided by the number of units sold, or 372,424 divided by 98,000, or 3.80.

Overall cost + Variable cost per unit Fixed costs are calculated as follows: Fixed costs = (Sales revenue - Profit) Fixed costs are calculated as follows: (372,424 - 150,268) - 132,670 = 89,486 / 98,000 = 0.91

b.Calculate the sales revenue level, both in units and money terms, at which the business broke even in 2021. (Answers for all breakeven questions should be rounded up to the next whole number or pound.)

Selling price per unit = 372424/98000 units =3.8 per unit

Variable cost = sales -fixed cost -profit

=372424-132670-150, 268=89486

Variable cost per unit =89486/98000 units

= 0.91312

Contribution margin ratio

=(3.8-0.91312)/38 =75.9705%

Break even sales(money terms)

=1, 32670/0.759705=174633.57

Break even units =174633.57/3.8=45956.20

Break even point

Money terms =174634

Units = 45,956 units

Create contribution analysis table that indicates fixed, variable and total costs, as well as revenue, for 2021 at production levels of 0, 100,000, 200,000 and 300,000 units.

Production Levels

0 100,000 200,000 300,000

Sales (3.80 x Prod. Level) - 380,000 760,000 1,140,000

Variable costs (24.03% x Sales) - (91,314) (182,628) (273,942)

Fixed costs (132,670) (132,670) (132,670) (132,670)

Total costs (132,670) (223,984) (315,298) (406,612)

Revenue (Loss) (132,670) 156,016 444,702 733,388

QUESTION

d.Illustrate your answers to (a), (b) and (c) above on a breakeven chart that shows revenue, total cost and fixed cost lines with an appropriate legend for each. Your chart should be labelled with an arrow that points to the breakeven point as well as to the margin of safety area.