Tallulah Trott, a friend of yours, has recently set up a small business making curtains. She has
Question:
Tallulah Trott, a friend of yours, has recently set up a small business making curtains. She has supplied you with the following figures, and has asked your advice on a number of issues:
Costs per month $
Materials 4,100
Labour 5,000
Production overheads 2,000
Selling and distribution overheads 1,000
Administration overheads 500
The above costs are based on producing and selling 1200 pairs of curtains per month at a selling price of $15 each.
80% of labour costs are fixed, as are 75% of production overheads, 60% of selling and distribution overheads, and 100% of administration overheads. All other costs vary directly with output.
Required:
a) How much profit she will make at the proposed production level and selling price?
b) Calculate the break-even point at this selling price.
c) Identify and explain the underpinning assumptions attached to the break-even model.
Discuss whether the model can successfully be utilised by a range of differing businesses.
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones