Budget Mowing manufactures a low cost ride-on lawnmower for the Australian market, the Quickmow. Current annual sales are 600 mowers and they sell for $1,000 each. Staff salaries are $101,000 per annum and the manufacturing shed rental and other overheads such as air conditioning are $19,000 per annum. On average parts for a mower cost $500 and other variable costs of manufacture are $100 per mower. 

Required:

 1. What is the contribution margin per mower sold? 

 2. How many mowers need to be sold per year to break-even?

 3. Given current annual sales, what would the annual profit/loss be?

 4. Draw a Cost-Volume-Profit graph showing total revenue and total costs, fixed costs, profit and loss areas, and clearly showing the break-even point in units and dollar revenue.

5. The owner of Budget Mowing is considering spending $20,000 on an advertising campaign for the year which it is expected will increase sales by 55 mowers. Is the additional spending worthwhile (show calculations to support your answer)? 

Answer rating: 100% (QA)

1 The contribution margin per mower sold Contribution Margin Sales price per unit Variable cost per ... View the full answer