Reference no: EM133172313

Assignment:

BREAK-EVEN CHARTS

The following data have been provided by the finance director of La Pitch which manufactures high-quality tents for the specialist outdoor market. The marketing director wants to reduce the price of the tents to $39.99 (he considers this to be a psychologically attractive price to consumers) to increase sales volume but there are concerns about reducing unit contribution and covering costs. There are also concerns about exceeding La Pitch's factory capacity.

direct labour per unit $17

direct materials per unit $18

fixed costs $200000

current selling price $45

maximum capacity of the factory is 30 000 units

1. Define the term 'unit contribution'.

2. On the basis of La Pitch's financial information, construct a fully labelled break-even chart.

3. Calculate the break-even point, the margin of safety and profit from the sale of 25 000 tents.