- 15 Marks
Compute break-even point in GH¢ and units for AquaPure Limited at GH¢16 per bottle using budgeted cost data.
Question
AquaPure Limited is planning to produce mineral water. It is contemplating to purchase a plant with a capacity of 100,000 bottles a month. For the first year of operation the company expects to sell between 60,000 to 80,000 bottles. The budgeted costs at each of the two levels are as follows:
| Particulars | 60,000 bottles | 80,000 bottles |
|---|---|---|
| Material | 360,000 | 480,000 |
| Labour | 200,000 | 260,000 |
| Factory overheads | 120,000 | 150,000 |
| Administration expenses | 100,000 | 110,000 |
The production would be sold through retailers who will receive a commission of 8% of sale price.
Required:
(a) Compute the break-even point in GH¢ and units if the company decides to fix the sale price at GH¢16 per bottle.
(b) Compute the break-even point in units if the company offers a discount of 10% on purchase of 20 bottles or more, assuming that 20% of the sales will be to buyers who will avail the discount.
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