Reference no: EM132767601
Question - Francis Limited produces and sells a single product which is mobile phones. Budgeted results for that product, for the year ended 31 December 2019, are shown below:
Budgeted sales 10,000 units
£ £
Sales 2,000,000
Direct Materials 800,000
Direct Labour 400,000
Fixed Overheads 500,000
Total costs 1,700,000
Total Profit 300,000
Required - You are required to:
a) Produce a profit statement for the year ending 31 December 2019, assuming actual sales are 12,000 units.
b) Calculate the break-even point for the year ending 31 December 2019 and the margin of safety expressed as a percentage of the original budgeted sales.
c) Calculate the revised breakeven point if a new wage settlement increases direct labour costs by 20%.
d) Assuming sales of 10,000 units are achieved, and the new wage settlement is never agreed, calculate the selling price per unit that would earn a total profit of £500,000.
e) Discuss the limitations of breakeven analysis.