Question cottage industries ltd expects to sell 500 baskets, Ask an Expert

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Question: Cottage Industries Ltd expects to sell 500 baskets a month. The business has the opportunity to rent a basket-making machine. Doing so would increase the total fixed costs of operating the workshop for a month to £3,000. Using the machine would reduce the labour time to half an hour per basket. The basket makers would still be paid £10 an hour.

(a) How much profit would the business make each month from selling baskets

(i) assuming that the basket-making machine is not rented, and

(ii) assuming that it is rented?

(b) What is the BEP if the machine is rented?

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