What are the current break even sales of Zelda? How is this number to be interpreted?

Q2. Under which conditions, i.e. for which of the two possible new selling prices, should the proposed campaign for Product A be launched, if so at all?

Q3. How many units of Product A would Zelda need to sell in order to justify the 60,000 EUR expenditure on advertising and promotion (assumed a new selling price of 2.65 EUR per unit)?

Q4. Assuming a new selling price for Product A of 2.75 EUR per unit and 590,000 units sold, at which (absolute) margin of safety would the company operate if the 60,000 EUR advertising campaign became effective?

 

Transcribed Image Text:

Zelda, a profit-maximizing company, manufactures and sells three products with the following selling prices and variable costs: Selling price Variable costs ● Product A Product B Product C (in EUR per unit) (in EUR per unit) (in EUR per unit) Product A: 460,000 units Product B: 1,000,000 units ● Product C: 380,000 units ● 3.00 1.20 The company is considering expenditure on advertising and promotion of Product A. It is hoped that such expenditure, together with a reduction in the selling price of the product, would increase sales. Current and planned annual sales volumes for the three products are: 2.45 1.67 ● 4.00 2.60 If 60,000 EUR per annum was to be invested in advertising and sales promotion, sales of Product A at reduced selling prices would be expected to be: 590,000 units at a price of 2.75 EUR per unit OR • 650,000 units at a price of 2.55 EUR per unit. Annual fixed costs are currently 1,710,000 EUR per annum. Zelda's CFO already came up with some alternative ideas on the advertising campaign. Nonetheless he needs your assistance in making the right decisions. Zelda, a profit-maximizing company, manufactures and sells three products with the following selling prices and variable costs: Selling price Variable costs ● Product A Product B Product C (in EUR per unit) (in EUR per unit) (in EUR per unit) Product A: 460,000 units Product B: 1,000,000 units ● Product C: 380,000 units ● 3.00 1.20 The company is considering expenditure on advertising and promotion of Product A. It is hoped that such expenditure, together with a reduction in the selling price of the product, would increase sales. Current and planned annual sales volumes for the three products are: 2.45 1.67 ● 4.00 2.60 If 60,000 EUR per annum was to be invested in advertising and sales promotion, sales of Product A at reduced selling prices would be expected to be: 590,000 units at a price of 2.75 EUR per unit OR • 650,000 units at a price of 2.55 EUR per unit. Annual fixed costs are currently 1,710,000 EUR per annum. Zelda's CFO already came up with some alternative ideas on the advertising campaign. Nonetheless he needs your assistance in making the right decisions.

Answer rating: 100% (QA)

To answer the questions we first need to calculate some key financial metrics based on the given information Given Data Product A Selling price EUR 30... View the full answer