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The firm sells a wall mounted control unit for ‘Smart Home’ systems that provides connectivity to home devices (for home automation) priced at £400 of which product variable costs are half of revenues

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The firm sells a wall mounted control unit for ‘Smart Home’ systems that provides connectivity to home devices (for home automation) priced at £400 of which product variable costs are half of revenues. They design and manufacture the systems in a small workshop with an annual capacity of
20,000 units where annual overheads are £690,000
a) Examine the workshop operating profitability:
i) Prepare a Contribution Statement for workshop production of 1,000 units; 5,000 units and then
multiples of 5,000 units.
ii) Conduct a Break-Even Analysis for the workshop - show your workings.
iii) If expected sales are 6,200 units is their sufficient Margin of Safety?
b) Revise this should the cost of parts and materials (from suppliers) increase such that the Contribution Margin Ratio for the product be reduced to one-third. Compare the workshop profitability results and discuss the operational/business implications for the firm.