Looking ahead to the financial year ending 31 March 2012, the directors of Problems Limited are faced with a budgeted loss of £10,000. This is based on the following data. Budgeted number of units: 10,000 £000 Sales revenue 100 Less: Variable costs 80 Contribution 20 Less: Fixed costs 30 –––– Budgeted loss (10) –––––––– The directors would like to aim for a profit of £20,000 for the year to 31 March 2012. Various proposals have been put forward, none of which require a change in the budgeted level of fixed costs. These proposals are as follows: 1. Reduce the selling price of each unit by 10 per cent. 2. Increase the selling price of each unit by 10 per cent. 3. Stimulate sales by improving the quality of the product, which would increase the variable cost of the unit by £1.50 per unit. Required: (a) Write brief notes on your understanding of fixed, variable and semi-variable costs (AC5.1) (b) For each proposal calculate: (AC5.2, AC5.3) i. the break-even position in units and in value terms; ii. the number of units required to be sold in order to meet the profit target (c) State with reasons which proposal you think should be adopted. (AC5.2, AC5.3)