QUESTION $1[25]$

Read the case study below to answer the questions that follow:

Shoprite, a major grocery retailer, is considering expanding its operations by

opening new stores in several underserved areas. The management team is tasked

with evaluating the financial implications of this expansion to ensure it aligns with

the company$$s strategic goals. As part of this evaluation, they need to consider

relevant costs, which are the costs that will directly affect the decision at hand.

In this case, the relevant costs include fixed and variable costs associated with the

new stores. Fixed costs, such as rent and salaries, remain constant regardless of

sales volume, while variable costs, like the cost of goods sold, fluctuate based on

sales. The selling price is also a key factor in assessing profitability. The

management team is keen to understand how many units need to be sold to cover

these costs and achieve profitability.

$1\mathrm{.}1$ Explain the concept of relevant costs and how they apply to Shoprite's decision$-$

making process for this expansion. The explanation should clarify which costs

are included and excluded from relevant costs $(10)$

$1\mathrm{.}2.$ Shoprite estimates the following costs for each new store:

$$ Fixed costs: R$500,000$ per year

$$ Variable costs: R$20$ per unit sold

$$ Selling price: R$30$ per unit

Calculate:

a$)$ c$)$ The break$-$even point in units for each store. b$)$ The break$-$even point in sales revenue value for each store. The profit or loss if $100,000$ units are sold per store annually. $(3)$

$(3)$

$(4)$

d$)$ The number of units that need to be sold to achieve a profit of R$1,000,000$

per store. $(5)$