Question: Cottage Industries Ltd expects to sell 500 baskets a month. The business has the opportunity to rent a basket-making machine. Doing so would increase the total fixed costs of operating the workshop for a month to £3,000. Using the machine would reduce the labour time to half an hour per basket. The basket makers would still be paid £10 an hour.
(a) How much profit would the business make each month from selling baskets
(i) assuming that the basket-making machine is not rented, and
(ii) assuming that it is rented?
(b) What is the BEP if the machine is rented?
(c) What do you notice about the figures that you calculate?