Question 2 (50 marks) Megasus is a IT games developing company for games development and is based in Bangalore IT city in India. The company which was established in 2000 have very successfully produced 11 PC online games and 10 mobile games to date. With more than 20 years of experience and more than 21 million PC users and million mobile users, the company offers total solutions to business partners, including games publishing (PC and mobile) for both South East Asia and Global market, games development, offline events or E tournaments management as well payment solutions. Megasus uses a method of batch production and manufactures batches of the games according to customer specifications such as speed, visual impact and graphics. Production workers are paid by the hour but receive a lower-than-average wage for India. To compensate they are offered a range of employee benefits, including healthcare, nursery vouchers, well-being services, as well as good job security Megasus does not sell locally in Bangalore, but exports 4000 software for games a year to Sri Lanka using local independent distributors who have knowledge of the local market as well as experience in delivering and installing games & software onto a range of devises. The distributors then sell them to local retailers and shops. 90% of Megasus' sales are organized through such distribution channels. Because using local independent distributors increases the final price of the game to the customer, senior managers have decided to offer customers in Sri Lanka the opportunity to purchase the games directly from Megasus. Customers have to telephone orders to Bangalore from Sri Lanka because e-commerce sales are not available. Megasus' Board of Directors are currently considering expansion into the South East Asia market using the same type of distribution channel employed in Sri Lanka The following are Megasus' expense and sales price figures (for ease the data has been converted into ) . Fixed costs of 100,000 per year Variable costs of 80 % of the selling price Selling Price of 1,000 per game. Output 4,000 games a) Define the term variable costs b) Identify two fixed costs for Megasus (2 marks) c) Define the term contribution and how is calculated. (2 marks) d) Explain the term break even & calculate the break-even quantity in units and E (show all of a) marks) your working) (6 marks) Continued on next Page Page 9 of 11 e) Explain the term Margin of Safety and calculate the margin of safety in unitsshow all of your e) Explain the term Margin of Safety and calculate the margin of safety in units (show all of your working). (4 marks) 1) Calculate the net profit if 4,000 games are sold (show all of your working). (4 marks) g) Draw a fully labelled break-even chart, based on output of 4,000 games (6 marks) h) Calculate the new number of games that would need to be manufactured and sold at the current price for Megasus to make a profit of 2,000,000 from both the Indian and Sri Lankan markets combined, if the Board of Directors decided to proceed with the expansion into India. (3 marks) i) Evaluate the usefulness and limitations of breakeven analysis to firms such as Megasus. (6 marks) 1) Megasus Financial Officer, Raja decides to review the performance of their Sri Lankan operation with Amber. Their Sri Lankan retail business has been very successful overall, but some retailers have been less successful than others. They consider the profitability of each shop to decide whether they should close those that are not performing so well. Amber runs her operation from a head office in Columbo, costs of which are charged out to shops in proportion to their sales revenue. Sri Lankan shops: Profitability analysis Kandy Million Galle Million Rupees Rupees Sales Revenue 31.5 52.2 Variable Costs 12.6 210 Rent of shop 4.4 6.5 Shop staff salarles 3.5 3.8 Other shop expenses 4.2 5.1 Head office allocation 4.5 7.5 casts Shop Profit/(Loss) 2.3 8.3 Jaffna Million Rupees 21.0 8.4 5.2 3.3 3.0 2.3 (1.2) Based on the financial data above which shops should Raja & Amber consider closing and why? Provide a financial statement to support your reasons and the overall impact on the profitability for the shops in Sri Lanka (6 marks) Continued on next page Page 10 of 11 A nad of the these the the soffthewarasmar ty