Cost management

    A firm makes a single product with a marginal cost of $3.50 and a selling price of $5.50. Fixed costs are $30 000 per period.

    You are required to calculate:

    a. The C/S ratio

    b. Sales at break-even point

    c. Number of units to break even

    d. Sales to achieve a profit of $10 000

    Question 2

    a) Smith Limited has made the following estimates for next month

    Selling price $25 per unit

    Variable cost $10 per unit

    Fixed costs for the month $300 000

    Forecast output 30 000 units

    Maximum output 40 000 units

    You are required to calculate the:

    i) contribution margin ratio

    ii) break-even point in units

    iii) break even points in sales revenue

    iv) margin of safety at the forecast output

    v) number of units to generate a profit of $100 000

    b) List and explain five (5) assumptions of break-even analysis

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