Mrs Mac sells burgers and is considering whether to open a new outlet. The burgers have a
Question:
Mrs Mac sells burgers and is considering whether to open a new outlet. The burgers have a single selling price and identical costs, regardless of where they are produced.Organisational policy dictates that a new outlet will only be opened if predicted profit is greater than $50,000.
The following data is supplied:
Variable data per burger:
Selling Price$6.00
Purchase Costs$3.90
Selling & Promotional Costs$0.50
Annual Fixed Costs:
Rent$60,000
Salaries$160,000
Other$100,000
Required:(Consider each part independently)
a)Calculate the annual breakeven point in unit sales.
b)Mrs Mac predicts that 220,000 burgers will be sold.Calculate the profit or loss and advise (based on organisational policy) whether the new outlet should be opened.
c)Calculate how many burgers must be sold to achieve a target profit before tax of $167,840.
d)Calculate how many burgers need to be sold to achieve an after-tax profit of $126,000 if the tax rate is 30%.
e)If the budget is to sell 300,000 burgers, what is the Margin of Safety?
f)By investing more capitalfor equipment,the business would be able to reduce selling costs to $0.40 per unit, with a 15% increase in Other Fixed Costs.
i) Calculate the annual new breakeven point in dollar sales is the investment is made.
ii) Advise Mrs Mac whether she should invest the capital or not, providing the reason for your conclusion.
Discuss two assumptions which need to be considered regarding Cost volume profit analysis.
Expert Answer:
Answer a Calculate the annual breakeven point in unit sales The breakeven point is where total revenue equals total costs The total costs consist of variable costs and fixed costs Variable cost per bu... View the full answer
