The Following Information Relates to a Month's Production of WER

question 53

Essay

The following information relates to a month's production of WER Ltd, a small manufacturing company mass-producing a single product.
Materials £4.00
Labour per unit £6.00
Fixed costs per month £40,000
Production capacity per month 10,000 units
Selling price per unit £17.00
Current level of sales per month 7,000 units
Required
a) Calculate the break-even point in units and
Calculate the current level of profit per month
b) The Marketing Manager of ABC Ltd. suggests that the company should increase the product's selling price to £20 and upgrade the quality of the product by spending an additional £2.00 per unit on materials. Fixed costs would be increased by £2,000. It is estimated that sales per month would drop to 6,500 units.
What would be the effect on ABC Ltd's profitability of implementing the above policy?

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Definitions:

Ethical Decision Making

The method of assessing and selecting between options in a way that aligns with ethical standards.

Selfish Interest

Selfish interest denotes pursuing actions or decisions that benefit oneself without regard for how they affect others, often at the expense of communal or collective well-being.

Shareholders

Individuals or entities that own shares in a corporation and have potential voting rights and the possibility of dividends.

Stakeholders

Individuals or groups that have an interest, financial or otherwise, in the performance and actions of an organization or project.