a) Chiyeyeye full cost statements appears as follows: Cost centre Cost (ZMW) Direct labour 16 000...

 

 

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a) Chiyeyeye full cost statements appears as follows: Cost centre Cost (ZMW) Direct labour 16 000 Direct materials 20 000 Direct expenses 4000 Total direct costs 40 000 Indirect expenses Rent 8000 Telephone Transport Marketing Repair and maintenance 2500 1500 1000 3000 Water 1000 Electricity Depreciation 3000 1000 Insurance 700 Finance cost 300 Total indirect costs 21 000 Total cost 61 000 Chiseche budgets to make and sell 100 pieces of furniture's during the financial year. If the selling price per furniture is ZMW 600 per piece and variable cost per unit would be ZMW 400. Looking ahead to the financial year ending 31 march 2020, the directors of Chiyeyeye limited are faced with a budgeted loss of ZMW 10,000 Budgeted units 100 Selling price per unit ZMW600 Variables costs per unit ZMW400 Fixed cost ZMW 21 000 The directors would like to aim for a profit of ZMW 20 000. Various proposals have been put forward, none of which require a change in the budgeted levels of fixed costs. a) Reduce the selling price per unit by 10 percent b) Increase the selling price of each unit by 10 percent c) Stimulate sales by improving the quality of the product, which would increase the variable cost of the unit by ZMW 15 per unit For each proposal calculate: i) • The break-even point in units and in monetary value terms (6 marks) • The number of units required to be sold in order to meet the profit target of ZMw 20 000 (2 marks) • State which proposal you think should be adopted to rescue chiyeyeye enterprise from the anticipated loss? (4 marks) i) The directors of chiyeyeye are considering purchasing a new machinery that would improve the quality and productivity of furniture production. The initial investment needed for the machinery is ZMW 120, 000. The cost of capital is 12% from CEEC With a new machinery in place, the project is expected to generate the following cash flows, ZMW 20 000, ZMW 30 000, ZMW 50 000, ZMW 50 000, and ZMW 60 000. • Calculate he Payback period for the project • Calculate the Net present value for the project • Advice if the project should be accepted under Net present value and payback period to chiyeyeye Management? • Explain the advantages and weakness of using payback period as criteria for (2 marks each=8 marks) a) Chiyeyeye full cost statements appears as follows: Cost centre Cost (ZMW) Direct labour 16 000 Direct materials 20 000 Direct expenses 4000 Total direct costs 40 000 Indirect expenses Rent 8000 Telephone Transport Marketing Repair and maintenance 2500 1500 1000 3000 Water 1000 Electricity Depreciation 3000 1000 Insurance 700 Finance cost 300 Total indirect costs 21 000 Total cost 61 000 Chiseche budgets to make and sell 100 pieces of furniture's during the financial year. If the selling price per furniture is ZMW 600 per piece and variable cost per unit would be ZMW 400. Looking ahead to the financial year ending 31 march 2020, the directors of Chiyeyeye limited are faced with a budgeted loss of ZMW 10,000 Budgeted units 100 Selling price per unit ZMW600 Variables costs per unit ZMW400 Fixed cost ZMW 21 000 The directors would like to aim for a profit of ZMW 20 000. Various proposals have been put forward, none of which require a change in the budgeted levels of fixed costs. a) Reduce the selling price per unit by 10 percent b) Increase the selling price of each unit by 10 percent c) Stimulate sales by improving the quality of the product, which would increase the variable cost of the unit by ZMW 15 per unit For each proposal calculate: i) • The break-even point in units and in monetary value terms (6 marks) • The number of units required to be sold in order to meet the profit target of ZMw 20 000 (2 marks) • State which proposal you think should be adopted to rescue chiyeyeye enterprise from the anticipated loss? (4 marks) i) The directors of chiyeyeye are considering purchasing a new machinery that would improve the quality and productivity of furniture production. The initial investment needed for the machinery is ZMW 120, 000. The cost of capital is 12% from CEEC With a new machinery in place, the project is expected to generate the following cash flows, ZMW 20 000, ZMW 30 000, ZMW 50 000, ZMW 50 000, and ZMW 60 000. • Calculate he Payback period for the project • Calculate the Net present value for the project • Advice if the project should be accepted under Net present value and payback period to chiyeyeye Management? • Explain the advantages and weakness of using payback period as criteria for (2 marks each=8 marks)

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