Reference no: EM133131812

Question - Chan, a sole trader, owns and manages a business which manufactures and sells one special type of small tool for home improvement shops.

Set out below is the sales revenue and profit for 2020.

Year	Sales	Profit
2020	£428,720	£138,956

In 2020 the business manufactured and sold 126,000 units and had fixed costs of £153,800. All other costs were variable.

a. Calculate the selling price and variable cost per unit for 2020. (Answers should be to the nearest penny. Any figures used in further answers to this question should be rounded numbers.

b. Calculate the sales revenue level, both in units and money terms, at which the business broke even in 2020. (Answers for all breakeven questions should be rounded up to the next whole number or pound.)

c. Complete contribution analysis table that indicates fixed, variable and total costs, as well as revenue, for 2020 at production levels of 0, 100,000, 200,000 and 300,000 units.

d. Illustrate your answers to (a), (b) and (c) above on a breakeven chart that shows revenue, total cost and fixed cost lines with an appropriate legend for each. Your chart should be labelled with an arrow that points to the breakeven point as well as to the margin of safety area.

e. Chan had considered spending an additional £14,400 on marketing in 2020. He predicted that such an additional investment would have increased the sales and production volume in the year to 138,000 units at a better selling price of £3.68. He also predicted there would have been no other changes to his fixed costs for the year nor any changes to the variable cost per unit.

i. If his predictions had proved correct, what would have been his new profit for the year?

ii. If his predictions had proved correct, what would have been his new breakeven point, in units, for the year?