The Lahore Qalandars Ltd (LQ Ltd) manufacture cricket bats which they sell to
wholesalers and retailers. LQ Ltd have been approached by a buyer who is
seeking to place a large order. The sales manager of LQ Ltd has been given the
responsibility of negotiating the deal and advising the company.
The sales manager has calculated that 15,000 cricket bats could be made and
has suggested a selling price of £28 per bat.
The costs have been estimated as follows:
Variable Costs per unit: £
Direct Materials 6.50
Direct Labour 5.20
Variable Selling overhead 3.30
Total 15.00
Attributable Fixed Costs: £
Production 28,000
Administration 24,000
General overheads are £13,000.
Required:
a) Calculate the profit or loss for the order.
(4 marks)
b) Calculate the breakeven number of Cricket Bats, breakeven revenue and the
margin of safety (in both units and as a percentage).
(4 marks)
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