Luther Corp is a medium-sized enterprise producing customized industrial equipment. The business is considering expanding its product line to include a new type of machinery that is in high demand within its industry. The management team is faced with several decisions related to this expansion.
They have gathered various financial data for analysis and need to make informed choices.

Background Information:
Current product line:
Luther Corp currently produces two types of industrial equipment, Product A and Product B.

Proposed expansion:
The business is considering introducing Product C, which requires a significant investment in research and development, production equipment, and marketing.
Financial Data:
The following financial information is available for the analysis:
• Current sales revenue for Product A: R2,000,000
• Current sales revenue for Product B: R1,500,000
• Expected sales revenue for Product C (first year): R1,000,000
• Research and development costs for Product C: R500,000
• Production Equipment Costs for Product C: R1,200,000
• Marketing costs for Product C: R300,000
• Expected variable costs for Product A: 70% of sales revenue
• Expected variable costs for Product B: 60% of sales revenue
• Expected variable costs for Product C: 65% of sales revenue
• Fixed costs (overheads) for the entire business: R800,000
• Investment cost for Product A = R1,000,000
• Investment cost for Product B = R900,000

Required:
• Using the provided financial data, explain which management accounting tools and techniques you would employ to evaluate the feasibility of introducing Product C.
• Perform a cost-volume-profit (CVP) analysis to determine the breakeven point for Product C and assess its profitability in the first year.
• Define and describe a performance evaluation method you would use to assess the performance of each product (A, B, and C) in the first year.
• Calculate the expected net profit for the business in the first year if it introduces Product C. Consider all the costs and revenues for all products.

Answer rating: 100% (QA)

To evaluate the feasibility of introducing Product C the management team can employ several management accounting tools and techniques Here are some of the key tools they can use CostVolumeProfit CVP ... View the full answer