The Following Graph Shows, in a Picture Form, Marginal Cost

question 4

Essay

The following graph shows, in a picture form, marginal cost and break-even information about the production and sale of a single product.
A ?
B ?
C 500 units - the current sales this year
D 300 units
E 100 units - the forecast sales next year
F ?
G £300,000
H £100,000
From the information given about the graph above calculate the following:
The selling price per unit
The variable cost per unit
The contribution per unit
The break-even point in units
The margin of safety in units at the present level of sales
The margin of safety in units at the forecast level of sales
In view of the likely deterioration of sales for next year give some ideas as to what management could do about the situation (other than launch a new product).
In view of the forecast reduction in sales Cajan Ham have decided to launch a new product. The product would be made separately from the present product. The forecast financial details are as follows:
Selling price £25
Variable cost £15
Annual Fixed costs £1,000,000
Forecast sales £2,000,000
Required
a. Calculate the break-even point in number of units sold.
b. Calculate the break-even point in £'s of sales.
c. What unit level of sales would Cajam Ham have to achieve to enable them to achieve a profit of £150,000?
d. What limitations are there to the break-even analysis you have just carried out?

Understand the concept of Net Present Value (NPV) and its relation to the cost of capital.

Comprehend the Internal Rate of Return (IRR) and how it's used in project evaluation.

Identify the differences and applications of NPV and IRR methods.

Analyze NPV profiles and understand their implications in project selection.

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