Problem
Frame up Ltd produces 8 " by 10" photo frames. Selected cost and sales Information is as follows:-
Sales revenue per unit. Ksh. 1,200
Variable cost per unit. Ksh. 680
Fixed cost per unit in July Ksh. 125
Frames produced and sold in July 7,280
Expected frames to be produced and sold in August 7,000
Task
1. Write up the company's cost equation in good form.
2. Calculate the monthly break-even level of sales in units.
3. Calculate the monthly break-even level of sales in shillings.
4. If the company sells 20 more frames beyond the break-even in August, determine by how much the operating income will increase.
5. If revenue increase by kshs.180,000, by how much will the company's operating income increase.
6. Suppose fixed costs decline by 15% and variable cost increase by Ksh. 75 per unit. Explain whether this changes should be made.
7. Describe the limitations of c-v-p analysis.