What would be the new profit or loss

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Reference no: EM133610423

Below are current selling prices and variable costs per kg, as well as fixed costs for the current period.

Selling price	£ 6.60
Variable
Tea leaves	1.4
Processing	0.6
Packaging	0.55
Distribution	0.2
Fixed
Retailers shelving fee	60,000
Production Equipment	15,000
Promotional costs	80,000

To boost profits for the future period, a marketing plan has been completed which involves spending £15,000 more on advertising and raising the selling price by 5%. It has been estimated that variable costs will need to increase to £3 per kg because of production and sales output increasing from 90,000 kg to 105,000 kg. To increase productive capacity, a one-off cost of £22,000 will be incurred.

a. Calculate the current break-even point, both in units and sales revenue.

b. Illustrate your answers to (a) above on a break-even chart that shows revenue, total cost and fixed cost lines with an appropriate legend for each. Your chart should be labelled with an arrow that points to the break-even point as well as to the margin of safety area. (6 marks)

c. i.According to Beyonca Ltd's marketing plan, what would be the new profit or loss?

ii.What would be the new break-even point, in units, for the year?

Reference no: EM133610423

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