Two Left Feet Ltd produces and sells a single product, the Claud at Shs.500. The Unit manufacturing cost of Claud is Shs.200 and total fixed manufacturing costs equal to
Shs.300,000. The company incurs selling and administration costs equal to 2% of sales
revenue and fixed selling cost of Shs.100,000 per annum.
Required:
a) Determine the break-even sales in units and in shillings
b) Determine the units that should be sold to earn a net income of Shs.200,000
c) If the company was in the 30% tax bracket, how many units will have to be produced to
earn the Shs.200,000
d) Management is considering a policy which would increase fixed manufacturing costs by
shs.200,000 but cut down on the variable manufacturing cost by 20%
(i). What is the break-even point in units and in revenue under this policy?
(ii). Assuming the 30% tax bracket, how many units will have to be produced to earn the
target profit of Shs.200,000 under this new policy?
e) At what level of sales level will management be indifferent between the two policies?
f) Assuming that the maximum possible demand is 6,000 units, determine the range of
sales which will be financially beneficial in each policy