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Sky Corporation makes a product which is sold to house builders in an expanding but very competitive market. The product is a device for providing ventilation at the eaves of domestic houses. The companys profit and loss statement for the most recent month is given below. All values are in sterling pounds.

Sales (100,000 units @ 8 per unit) Less cost of goods sold: Direct materials 135,000 Direct labour 270,000	800,000
Fixed manufacturing expenses 135,000	540,000
Gross margin Less Administration and selling expenses: Delivery expenses 30,000 Sales commissions 50,000 Advertising expenses 15,000 Travel expenses 15,000 Fixed administration and	260,000
Selling expenses 10,000	120,000
Net profit before interest and tax	140,000

Of the advertising expenses, 5,000 is variable, and all but 5,000 of the travel expenses is variable. Assume that delivery expenses and sales commissions are variable costs.

1. 1. Determine the sales at break-even point for this product. calculate the contribution sales ratio.
2. Determine the sales needed to achieve a target profit of 200,000.
3. If the company reduced its selling price to 7 per unit in the face of increased competition, determine the effect on the break-even point and the profit.
4. In the context of break-even analysis, explain the role of the concept of

Margin of Safety in managerial decision-making.

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