The Soft-Flow Ink Company's income statement for the preceding year is presented below. Except as noted, the costs revenue relationship for the coming year is expected to follow the same pattern as in the preceding year. Income statement for the year ending 31st December, 2008 is as follows:
£
Sales (2,000,000 bottles @ 25 pence) 500,000
Variable costs 300,000
Fixed costs 100,000
400,000
Pre-tax profit 100,000
Less taxes 50,000
Profit after income tax 50,000
(i) What is the break-even point in sales and units?
(ii) Suppose that a plant expansion will add £ 50,000 to fixed costs and increase capacity by 60%, how many bottles would have to be sold after the addition, to break-even?
(iii) At what level of sales will the company be able to maintain its present pre-tax profit position even after expansion?
(iv) The company's management feels that it should earn at least £10,000 (pre-tax per annum) on the new investment. What sales volume is required to enable to the company to maintain existing profits and earn the minimum required on new investments?
(v) Suppose the plant operates at full capacity after the expansion, what profit will be earned?