Aluko manufactures a single product. The following budgeted information has been prepared (per unit) for the next period:
Selling price $75.00
Direct materials $9.40
Direct labour $25.50
Variable overheads $9.60
Additional information for the next period:
Fixed overheads will be $41 785
Production and sales are planned to be 2 500 units.
REQUIRED
(a) Calculate, for the next period, the:
i. contribution per unit (2 marks)
ii. break-even point in units and in sales revenue (3 marks)
iii. number of units that need to be sold to give a profit of $28 060 (3 marks)
The company is considering installing new machinery, which would reduce the direct labour costs by
$8.50 per unit, but would also increase the fixed overheads by $8 525 for the next period. All other
costs per unit and the selling price would remain unchanged.
Production and sales are planned to remain at 2 500 units for the period.
(b) Calculate, for the next period, the:
i. revised contribution per unit based on the proposed changes (2 marks)
ii. revised break even in units and sales revenue (3 marks)
iii. margin of safety in sales revenue and as a percentage of sales. (3 marks)
(c) Evaluate whether Aluko should install the new machinery. (4 marks)​