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Octa Electronics produces and markets a single product. Presently, the product is manufactured in a plant that relies heavily on direct labour force Last year, the company sold 5,000 units with the following results:
Sales
22,500,000
Less Variable expenses
13, 500, 000
Contribution margin
9,000,000
Less: Fixed expenses
6,300, 000
Net income
2,700,000
Required
A)Compute the break-even point in rupees and the margin of safety.
B)
1)What would be the contribution margin ratio and the break-even point in number of units if variable cost increases by K600 per unit? Also compute the selling price per unit if the company wishes to maintain the contribution margin ratio achieved during the previous year.
2)The company is also considering the acquisition of a new automated plant. This would result in the reduction of variable costs by 50% of the amount computed in (b) above whereas the fixed expenses will increase by 100%. If the new plant is acquired, how many units will have to be sold next year to earn net income of K 3,150,000.
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