Reference no: EM132959478

XYZ Ltd manufactures a range of fast moving consumer goods. One of their most popular products is a luxury toaster which is produced using a mixture of automated and manual production activities. The directors are concerned that there is some risk of the toasters actually creating losses.

Your firm has been engaged to provide some consultancy services on Breakeven Analysis (Cost-Volume-Profit Analysis) and make recommendations to help XYZ Ltd meet its target profits.

You analyzed the company's records and came up with the information below:

Selling price per unit ($)      50
Variable cost per unit ($)         20

Fixed costs relating to this product are expected to be Ksh 360,000 per period. Production and sales of 15,000 units are expected per period. Opening and closing stocks may be ignored.

REQUIRED:

Problem a) Prepare a break-even chart for toaster production clearly showing the following:
Fixed costs
Total variable costs
Total revenue
Total costs
Break-even point
Margin of safety

Problem b) Compute the break-even point (in both revenue and units) to verify the values already identified in the chart for part (a)

Problem c) Calculate the budgeted profit for the period

Problem d) Estimate the sales levels (in both revenue and units) required to generate a target profit of 20%.