Bodgit Ltd makes 200 wooden kitchen chairs every month and sells them for £50 each. Fixed monthly overheads are £3,000 and the standard cost of one chair is as follows:
.............................................. £
Materials........................... 15
Direct labor........................ 8
Variable overheads........... 7
Tasks:
1. Calculate for one month:
a) the variable cost of one chair;
b) the break-even point;
c) the profit if 200 chairs are sold;
d) the number of chairs sold to give a profit of £4,000.
2. In an attempt to boost sales, Bodgit plans to reduce the selling price to £48, improve the quality by spending 20% more on materials and increase its advertising by £1,000 a month.
Calculate:
a) the new break-even point;
b) the profit if 350 chairs are sold;
c) the margin of safety (expressed as a % of sales) if 350 chairs are sold;
d) the number of chairs sold to give a profit of £4,000. 3 Explain why your answers to the above questions should be seen as estimates rather than exact answers.