A business produces one single product. The annual fixed costs of operating the factory are X....

 

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A business produces one single product. The annual fixed costs of operating the factory are £X. Each unit of product requires direct materials that cost £Y and requires 2 hours direct labour at the rate of £4 an hour. The finished product is sold for 11,000 units at £Z each. The business has the opportunity to rent a machine. Doing so would increase the total annual fixed costs to £170,000. Using the machine would reduce the labour time to 1 hour at the same existing rate. Student number digit o or I or 2 or 3 14 or 5 or 6 7 or 8 or 9 Required: - (a) Under both situations, without and with machine, calculate the following; - (i) number of units of product the business needs to sell in order to achieve a target profit of £60,000 per annum. (5 marks) (ii) annual net profit of the business. (8 marks) (iii) break-even point in units. (5 marks) (b) Critically analyse whether the business should rent the machine. (7 marks) A business produces one single product. The annual fixed costs of operating the factory are £X. Each unit of product requires direct materials that cost £Y and requires 2 hours direct labour at the rate of £4 an hour. The finished product is sold for 11,000 units at £Z each. The business has the opportunity to rent a machine. Doing so would increase the total annual fixed costs to £170,000. Using the machine would reduce the labour time to 1 hour at the same existing rate. Student number digit o or I or 2 or 3 14 or 5 or 6 7 or 8 or 9 Required: - (a) Under both situations, without and with machine, calculate the following; - (i) number of units of product the business needs to sell in order to achieve a target profit of £60,000 per annum. (5 marks) (ii) annual net profit of the business. (8 marks) (iii) break-even point in units. (5 marks) (b) Critically analyse whether the business should rent the machine. (7 marks)

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