Blackthorns Ltd produces a single product, which has a selling price of £10 per unit and a variable cost of production of £4 per unit. The fixed costs of production are £55,000. In addition, the company incurs distribution and selling costs of £1.90 per unit as variable costs and £6,500 as fixed costs.

Required

1. Calculate the contribution margin per unit and contribution margin ratio.

2. Calculate the expected breakeven point in both units and revenue.

3. Assuming that Blackthorn Ltd. sells all its products and expects sales of £200,000 for the year, calculate  the expected profit.

4. The company’s directors believe that a 5% reduction in price will increase the initial sales volume of 20,000 by 15%. They think that an additional advertising expenditure of £10,000 will further increase the original sales volume by 5%. What will happen to the profit if the price cut and the increase in advertising costs are implemented simultaneously?

5. Blackthorn intends to introduce a deluxe version of the product with a selling price of £15 and a combined variable production and distribution cost of £8 per unit. No new fixed costs will be incurred.

Calculate the new breakeven level of sales if the company sells three standard products of £10 each for every one deluxe version it sells?