Cottage Industries Ltd makes baskets. The fixed cost of operating the workshop for a month totals Rs.500 .Each basket requires materials that cost Rs.2 and takes one hour to make. The business pays the basket makers Rs.10 an hour .The basket makers are all on contracts such that if they do not work for any reason, they are not paid. The baskets are sold to a wholesaler for Rs.14 each

1.1 What is the BEP for basket making for the business?

1.2 The company expects to sell 500 baskets a month. The business has the opportunity to rent a basket-making machine. Doing so would increase the total fixed cost of operating the workshop for a month to Rs.3000.Using the machine would reduce labour time to half an hour per basket. The basket makers would still be paid Rs10 an hour.

a. How much profit would the business make each month from selling baskets

-Without the machine and With the machine

b. What is the BEP if the machine is rented?

c. Contribution to sales ratio with the machine and without the machine

d. What is the MOS if expected sales volume is 500 units?

e. What volume of activity is required in order to make a profit of Rs.4000 a month; without the machine and with the machine?

f. Draw the break even charts for cottage industries under both situations

Answer rating: 100% (QA)

11 The BEP for basket making for the business is 500 baskets This is because the fixed cost of opera... View the full answer