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1. The Khandoura Plc  manufacturers khandouras which are sold through discount houses. Each khandoura is sold for \$25; the fixed costs are, \$140,000 for 30,000 khandoura or less; variable costs are \$15 per khandoura.

a. What is a breakeven point and what is its significance to the company?

b. What is the firm’s gain or loss at sales of 8,000 khandouras?

c. What is the firm’s gain or loss at sales of 18,000 khandouras?

d. Calculate the breakeven point? Illustrate by means of a properly labeled chart.

e. What is margin of safety?

f. Calculate the firm’s margin of safety at 30,000 units

g. What is the margin of safety if the fixed costs increase to \$250,000. What is the impact of high fixed costs on the margin of safety?

h. What happens to the breakeven point if the selling price rises to \$31? Illustrate by means of a properly labeled chart. What is the significance of the change to the company?

i.   What happens to the breakeven point if the selling price falls to \$10? Illustrate by means of a properly labeled chart. What is the significance of the change to the company?

j.   What happens to the breakeven point if the fixed costs rise to \$200,000? Illustrate by means of a properly labeled chart. What is the significance of the change to the company?

k. Calculate the breakeven point if the firm has a target profit of \$250,000

l.   Calculate the breakeven point if the firm has a advertising expense of \$500,000

Part B: Payback versus Breakeven Analysis

m. What are the similarities (if any) and differences (if any) between the payback period and the breakeven point?

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