Calculate Total Fixed Costs.

The break-even point in sales value is given as $3,600,000, and the contribution margin ratio is 40% (0.40).

$$\text{Break-even Point (in sales value)} = \frac{\text{Total Fixed Costs}}{\text{Contribution Margin Ratio}}$$ $$3,600,000 = \frac{\text{Total Fixed Costs}}{0.40}$$ $$\text{Total Fixed Costs} = 3,600,000 \times 0.40 = 1,440,000$$

a) (i) Total fixed costs: $\boxed{\text{1,440}}$ ($000)

Total Fixed Costs consist of Fixed Manufacturing Overheads and Fixed Selling and Administration Expenses.

$$\text{Total Fixed Costs} = \text{Fixed Manufacturing Overheads} + \text{Fixed Selling and Administration Expenses}$$ $$1,440,000 = \text{Fixed Manufacturing Overheads} + 400,000$$ $$\text{Fixed Manufacturing Overheads} = 1,440,000 - 400,000 = 1,040,000$$

a) (ii) Fixed manufacturing overheads: $\boxed{\text{1,040}}$ ($000)

Net Profit is calculated as Contribution minus Total Fixed Costs.

$$\text{Net Profit} = \text{Contribution} - \text{Total Fixed Costs}$$ $$720,000 = \text{Contribution} - 1,440,000$$ $$\text{Contribution} = 720,000 + 1,440,000 = 2,160,000$$

a) (iii) Contribution: $\boxed{\text{2,160}}$ ($000)

Contribution is also calculated as Sales multiplied by the Contribution Margin Ratio.

$$\text{Contribution} = \text{Sales} \times \text{Contribution Margin Ratio}$$ $$2,160,000 = \text{Sales} \times 0.40$$ $$\text{Sales} = \frac{2,160,000}{0.40} = 5,400,000$$

a) (iv) Sales: $\boxed{\text{5,400}}$ ($000)

Contribution is Sales minus Total Variable Costs.

$$\text{Total Variable Costs} = \text{Sales} - \text{Contribution}$$ $$\text{Total Variable Costs} = 5,400,000 - 2,160,000 = 3,240,000$$

Total Variable Costs consist of Direct materials, Direct labour, Variable manufacturing overheads, and Variable selling expenses.

$$\text{Total Variable Costs} = \text{Direct materials} + \text{Direct labour} + \text{Variable manufacturing overheads} + \text{Variable selling expenses}$$ $$3,240,000 = 1,440,000 + \text{Direct labour} + 360,000 + 216,000$$ $$3,240,000 = \text{Direct labour} + 2,016,000$$ $$\text{Direct labour} = 3,240,000 - 2,016,000 = 1,224,000$$

a) (v) Direct labour: $\boxed{\text{1,224}}$ ($000)

b)
Limitations of break-even analysis include:

• It assumes that costs and revenues behave in a linear fashion, which is often not true in real-world scenarios.
• It assumes that the selling price per unit and variable cost per unit remain constant, and fixed costs are constant within the relevant range, which may not hold true for all production levels.
• It becomes complex and less accurate for businesses selling multiple products, as it assumes a constant sales mix.