Problem
A company sells a product which has a variable cost of £3 a unit. Fixed costs are £10,000. It has been estimated that if the price is set at £5 a unit, the sales volume will be 10,000 units; whereas if the price is reduced to £4 a unit, the sales volume will rise to 15,000.
(a) Draw a break-even chart covering each of the possible sales prices, and state the budgeted profits, the break-even points and the margins of safety.
(b) Compare the two possible situations. Consider the assumptions and limitations of your analysis.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.