Cotham Ltd makes a patented folding table which sells for 21. For the last year it has been operating at 40% of capacity, producing, welding and selling 60,000 tables. Total costs were:

Fixed 540.000

Variable 900,000

What was the size of last year's profit or loss (2 marks)

If the selling price remains at 21, what will be the break even point (2 marks)

ill. What was the average cost per table last year (2 marks) iv. What would be the profit if the company could sell its full capacity at 21 (2 marks)

v. What would be the average cost per table at full capacity (2 marks)

The sales manager considers that sales would increase if the selling price were reduced below 20. Would it be advantageous to cut the price to 19.99 if this increased sales to 120,000 tables per annum (2 marks)

vi. The advertising manager considers that a better method to achieve profit and number of sales uplift would be increased advertising expenditure. What is the maximum amount which might be spent on additional advertising to obtain the same profit and sales numbers as part vi. (3 marks)

vill. Taking into account risk and commercial factors, discuss which of the two plans [Cutting the price or advertising you think would be best for Cotham Ltd o marks) REMEMBER FIXED COSTS ARE FIXED AND VARIABLE COSTS ARE VARIABLE :)

b) Explain briefly why classifying costs as fixed, variable, sunk or relevant is important for decision making Highlight any limitations to utilising these classifications for decision making. (5 marks) Total