3. Below is information relating to the Ticker, the only product made by Hayes Ltd

Sales (10,000 units @ 28)

280,000

Less:

Variable Production Costs 90,000

Fixed Production Overheads 60,000

(150,000)

130,000

Less :

Administration, selling and distribution costs:

Variable 25,000

Fixed 32,000

(57,000)

Net Profit

73,000

There will be no opening or closing stock.

REQUIRED:

On the assumption that all expense and revenue relationships would remain unchanged except where specified, answer each of the following questions independently:

(a) Calculate the break-even point in units sold and in (10 marks) (b) The Managing Director of Hayes Ltd believes that if the selling price is reduced from 28 to 25 per unit, sales volume will increase to 11,200 units. In addition, new machinery will cost 10,000 to hire but will reduce material costs by 1 per unit. What will be the new expected profit and the new break even? (12 marks)

(c) Advise the Managing Director whether you think the price change should be made stating any weaknesses that might arise with breakeven analysis.