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?

Question

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The Answer of 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?

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