Question 5 Say Cheese limited produces three products. Recently, one of its suppliers has suffered from...

 

Transcribed Image Text:

Question 5 Say Cheese limited produces three products. Recently, one of its suppliers has suffered from shortages of raw material. The details are as follows:- Selling Price Direct Material Direct Material 2 Variable Overheads Allocation of Shared Fixed Costs Profit Estimated Sales Volume in Units (Demand) Zoemini E per unit 125.00 60.00 35.00 10.00 15.00 5.00 10000 Instax Wide £ per unit 95.00 35.00 10.00 35.00 40.00 100.00 55.00 30.00 20.00 20.00 -25.00 -25.00 Polaroid £ per unit 12000 15000 Required: - a. Advice the managers which products should be manufactured, and which should be discontinued. (2 Marks) b. You have now learnt that £20 of Instax Wide fixed cost is a separable fixed cost, will this alter your recommendation? (2 Marks) c. Assume the business's fixed costs are all shared, not separable, and Direct Material 2 costs £5 per ml. You have been advised that due to a shortage of Direct Material 2 the business can only secure from suppliers a total of 80000 ml in the current year. Advise the business on a sales mix that will maximise its contribution and calculate this contribution profits. Numerically justify your recommended sales mix. (10 Marks) d. Assume the fixed costs are separable. The business plans to launch a new advertising campaign costing £10000. Calculate its expected profit for the upcoming year, the break-even volume and the margin of safety. (3 Marks) e. The advertisement agency has offered the business an option to pay a commission of £10 for each unit of sales, as opposed to a fixed annual fee of £10000. If the business accepts this offer, what will its expected profit, break-even volume and margin of safety be for the upcoming period? (3 Marks) TOTAL MARKS = 20 Question 5 Say Cheese limited produces three products. Recently, one of its suppliers has suffered from shortages of raw material. The details are as follows:- Selling Price Direct Material Direct Material 2 Variable Overheads Allocation of Shared Fixed Costs Profit Estimated Sales Volume in Units (Demand) Zoemini E per unit 125.00 60.00 35.00 10.00 15.00 5.00 10000 Instax Wide £ per unit 95.00 35.00 10.00 35.00 40.00 100.00 55.00 30.00 20.00 20.00 -25.00 -25.00 Polaroid £ per unit 12000 15000 Required: - a. Advice the managers which products should be manufactured, and which should be discontinued. (2 Marks) b. You have now learnt that £20 of Instax Wide fixed cost is a separable fixed cost, will this alter your recommendation? (2 Marks) c. Assume the business's fixed costs are all shared, not separable, and Direct Material 2 costs £5 per ml. You have been advised that due to a shortage of Direct Material 2 the business can only secure from suppliers a total of 80000 ml in the current year. Advise the business on a sales mix that will maximise its contribution and calculate this contribution profits. Numerically justify your recommended sales mix. (10 Marks) d. Assume the fixed costs are separable. The business plans to launch a new advertising campaign costing £10000. Calculate its expected profit for the upcoming year, the break-even volume and the margin of safety. (3 Marks) e. The advertisement agency has offered the business an option to pay a commission of £10 for each unit of sales, as opposed to a fixed annual fee of £10000. If the business accepts this offer, what will its expected profit, break-even volume and margin of safety be for the upcoming period? (3 Marks) TOTAL MARKS = 20

Answer rating: 100% (QA)

a Polaroid should be manufactured and Zoemini should be discontinued This is because even though Zoemini has a higher selling price it also has a higher cost per unit This means that it is not as prof... View the full answer