Question 4

(A) Rennes Ltd provides a single standard service. The business’s results for the past two months are as follows:

There were no changes, of any description, in selling prices or costs over the two months.

Required:

(a) What is the break-even point for the business’s activities?

(b) What benefit will it be for the management of Rennes Ltd, to carry out the analysis required in part (a) and to know the business’s break-even point?

(B) Lorient plc has three products all of which require the same production facilities. Financial data on the three products are as follows: 

All three of the products use just one raw material, which is the same material for all three products. This material costs £12 a kilo and is scarce, such that the amount of all three products that can be produced falls well below the amounts that the market would take. All labour is a variable cost.

Product X is sold in a market where the selling price per unit is fixed at £60.

Required: Show, with workings and explanations, the price at which the business should sell products Y and Z so that it would be equally profitable to produce and sell any one of the three products.