Intermediate (9 marks; 16 minutes)

SOURCE: ADAPTED FROM ACCA PAPER 1.2 Pointdextre Ltd, which manufactures and sells a single product, is currently producing and selling 102 000 units per month, which represents 85% of its full capacity. Total monthly costs are R619 000, but at full capacity these would be R700 000. Total xed costs would remain unchanged at all activity levels up to full capacity. The normal selling price of the product results in a contribution to sales ratio of 40%.

A new customer has offered to take a monthly delivery of 15 000 units at a price per unit 20% below the normal selling price. If this new business is accepted, existing sales are expected to fall by one unit for every six units sold to this new customer.