Juices R Us sells bottles of freshly squeezed juice to small convenience stores throughout Melbourne. Its latest statement of profit or loss for the last 12 months is as follows.

* all variable costs
# all fixed costs

Required

(a) Calculate the contribution margin per juice bottle. 2 marks

(b) Calculate the number of juice bottles to break even in both units and sales dollars. 2 marks

(c) The company expects to sell 115000 units in the coming year.
(i) What is the margin of safety at this level of activity? 1 mark
(ii) How much profit will the business make for the year if its estimated level of activity is accurate? 1 mark

(d) The company estimates that, if it reduced the selling price by $0.30 per bottle, spent an additional $20000 on advertising for the year and improved the appearance of the juice bottle (at an extra cost of $0.15 per bottle), sales for the year would rise to 155000 units. Using supporting calculations, advise whether the company should make these changes or retain the existing revenue and cost structure and go with the 115000 units sales plan. 4 marks

(e) Juices R Us could avoid the manager’s salary costs by paying her $1.00 for every bottle sold. In what circumstances would Juices R Us benefit from switching to this arrangement? (Revert to original cost scenario.) 4 marks

(f) Juices R Us is introducing a new product, exotic juice, which will sell for $5.50. The only additional variable cost is the addition of the ‘special exotic’ supplement at $0.50 per bottle. Other variable costs are as per the original cost scenario for the regular fresh juice bottle. Fixed costs will increase by $15000 per year due to both administrative and production changes. Considering this information, what would be the weighted average contribution margin of ‘standard juice’ and ‘exotic juice’? 4 marks

(g) The sales mix is expected to be 85 per cent standard juice and 15 per cent exotic juice. What is the new break-even point for Juices R Us and the breakdown per product type? 4 marks

Transcribed Image Text:

JUICES R US Statement of profit or loss Sales (100 000 bottles x $5) Less: Cost of sales (100 000 bottles x $3)* Gross profit Less: Other expenses Advertising Manager's salary Occupancy and administration Profit $10000 50 000 20000 $500 000 300 000 200 000 80 000* $120 000