In an effort to increase sales and profits, management is considering the use of a higher-quality speaker. The higher-quality speaker would increase variable costs by ₤3 per unit, but management could eliminate one quality inspector who is paid a salary of ₤30,000 per year. The sales manager estimates that the higher-quality speaker would increase annual sales by at least 20%.
(a) Assuming that changes are made as described above, prepare a projected profit and loss account for next year. Show data on a total, per unit, and percentage basis. [12 marks]
(b) Compute the company’s new break-even point in both units and pounds of sales. Use the CM method.[4 marks]
(c) Would you recommend that the changes be made? [7 marks]