Doubt regarding F5 question

I had an accident resulting in my leg being broken in 3 different places. I spent some time in hospital and now i’m back home. Unfortunately I missed big chunk of my tuition and I have problems catching up:( I was wondering if any kind soul could help me up by pointing out where to start this one below. I already emailed my tutor asking for the answer but he said that answers can be provided only for those present during classes. As you can see I couldn’t participate and sill can’t as my motion is severely limited:( Anyway, I’m not giving up and I am still planning to take F5 in December!
Any tips/help with the exercise below will be highly appreciated.

Grenville Ltd manufactures and sells a single product, Naturally Green, a fuel saving device for motor vehicles in the domestic market. The company commenced business operations on January 2012 and sales in the first six months were brisk due to the world wide increase in fuel prices. However, the second half of the year saw a drop in sales as a result of more competing companies entering the market and a gradual reduction in fuel prices.

The following summarised profit and loss account has been prepared by the previous management accountant:

Year 2012

1st half year 2nd half year

£000 £000 £000 £000
Sales
– 1st half: 35,000 units 1,400
– 2nd half: 25,000 units 1,000
Direct materials 350 250
Direct labour 280 200
Manufacturing overheads 245 195
Administration overheads 15 15
Selling overheads* 165 1,055 145 805
Net profit 345 195

* Selling overheads include sales commission of 5% based on sales value.

The Managing Director (MD), an engineer who founded the company, recently attended a seminar for non-accountants on ‘Cost-Volume-Profit Analysis and its benefits’. Although he found the seminar interesting, he would like to know more about the following:

(a) How does the economist’s breakeven chart differ from the accountant’s breakeven chart?

(b) The term ‘fixed cost’ has been explained in the seminar as ‘a cost that remains unchanged when production activity changes over a period of time and over a certain relevant range’. He is unsure of what is meant by ‘period of time’ and ‘relevant range’ as he believes that there’s no such thing as a fixed cost and that all costs are variable in the long term.

(c) An explanation of the breakeven point and margin of safety of the company based on its present cost structure for the second half year of 2012, and a brief explanation of the High-Low method of cost estimation used in your calculations, including its weaknesses as well as suggesting an alternative method.

The marketing manager feels that the current marketing strategy used by the company is no longer effective. The company presently employs a large sales staff on a 3 monthly contractual basis and are paid a basic salary together with a sales commission. The sales staff needs to fulfill the monthly sales quota set by the company for their contract to be renewed further.

The marketing manager has suggested the following proposals to stop the decline in sales for the next six months:

Proposal 1

Rent floor space in busy shopping malls located in other major cities not served by the current sales staff and set up booths using the rented space to promote and sell the company’s product. Some of the existing sales staff will be seconded to manage these booths.

Spend an extra £38,000 on advertising and promotional materials. Rental of floor space would amount to £72,000.

The marketing manager is confident that together with a 5% reduction in unit selling price, sales volume will increase by 30% over the second half year sales of 2012. Unit material cost will be reduced by 5% due to bulk discount. It is assumed that all other costs remain unchanged.

Proposal 2

Reduce the present number of sales staff by not renewing the contracts of those who failed to fulfill the sales quota set by the company. Appoint workshops/garages (motor vehicle repair shops) and shops selling car accessories to be the company’s authorized dealers.

Additional promotional materials (posters, leaflets etc.) for the authorized dealers would cost £15,000. Fixed selling overheads (i.e. salaries of sales staff) will be reduced by £75,000.

The marketing manager is confident that with a 10% reduction in unit selling price and a sales commission of 18% of selling price to be paid to all authorized dealers and remaining sales staff, the sales volume will increase by 15% over the 2012 second half year sales. Unit material cost will be reduced by 3%. It is assumed that all other costs remain unchanged.