Reference no: EM133066007

Question - Super-Sound Masters Co. Ltd Super-Sound Masters Co. Ltd manufactures and sells compact discs. The Managing Director, Mr. Williams, is interested in considering the various alternative situations that may impact on next year's profitability and has provided the price and historical cost data below for the accounting period ended 30th June 20X0. In addition, Mr Williams is expecting annual sales of 120,000 units (sales price constant) for the year ended 30th June 20X1.

£ (total) £ (per unit)

Sales price 25.00

Variable costs: Direct materials 10.50

Direct labour 5.00

Direct expenses 3.00

Selling expenses 1.30

Fixed costs: Manufacturing overheads 192,000

Selling and administrative expenses 276,000

Required -

(a) Estimate the company's breakeven point in units and in sales value. In light of Mr. William's expectations, identify the company's margin of safety.

(b) Recent international events have impacted on the supply of the direct materials. It is felt that these events will cause a 10% rise in direct material prices and Mr Williams would like to know the potential effect of this rise on the breakeven point. Compute the adjusted breakeven point, and discuss the results.

(c) Even though the material price has increased (as discussed in (b)), the shareholders have still insisted that the company should at least achieve an after-tax profit of £260,000. Calculate the number of units the company would now have to sell in 20X1 to meet this profit objective.