Reference no: EM132487525

For Year 1 Royal Rose Ltd has produced the following budget figures for product Z.

                       £ Per unit

Selling Price      125

Variable Cost:

Direct material    36

Direct labor     30

Overheads        9

• For the year, the budgeted fixed overhead is £ 120,000 and the budgeted sales are 5,500 units.

Required:

(a) The break-even point in units

(b) The margin of safety in units

(c) The budgeted profit for year 1

(d) The sales manager has suggested the following options for the next year:

Option (1) Reduce the selling price to £ 118 per unit. This will increase sales by 2,000 units. Labor costs will increase by £ 3 per unit and fixed overheads will decrease by £ 10,000.

Option (2) Increase the selling price to £ 165 per unit. This will decrease sales by 500 units and decrease fixed overheads by £ 12,000.

Required:

Question 1: Calculate the budget profit for each of two options individually.