QUESTION $3(20$ Marks$)$

$3\mathrm{.}1$ REQUIRED

Study the information given below and answer each of the following questions independently. The

expanded contribution margin model must be used to answer questions $3\mathrm{.}1\mathrm{.}2$ and $3\mathrm{.}1\mathrm{.}3.$

$3\mathrm{.}1\mathrm{.}1$ Calculate the margin of safety $($as a percentage, expressed to two decimal places$).(4$ marks$)$

$3\mathrm{.}1\mathrm{.}2$ Calculate the number of units that must be sold if the company desires an operating profit

of R$2700000.(4$ marks$)$

$3\mathrm{.}1\mathrm{.}3$ Suppose the company wants to spend an additional R$240000$ on advertising and reduce

the selling price by R$8$ per unit, with the expectation that the sales volume will increase by

$20\%.$ Is this a good idea? Motivate your answer. $(4$ marks$)$

INFORMATION

Viking Ltd manufactures a product that sells for R$108$ each. Production and sales are presently $100000$ units

per year. Variable manufacturing costs are R$54\mathrm{.}60$ per unit, of which R$10\mathrm{.}00$ per unit are for overheads.

Salespersons earn a commission of $5\%$ of sales. Fixed costs amount to R$2720000$ for manufacturing

overheads and R$1180000$ for selling and administrative activities.

$3\mathrm{.}2$ REQUIRED

Use the information given below to calculate the following. The expanded contribution margin model must

be used to answer questions $3\mathrm{.}2\mathrm{.}2$ and $3\mathrm{.}2\mathrm{.}3.$

$3\mathrm{.}2\mathrm{.}1$ Variable costs per unit $(2$ marks$)$

$3\mathrm{.}2\mathrm{.}2$ Break$-$even value using the contribution margin ratio $(2$ marks$)$

$3\mathrm{.}2\mathrm{.}3$ Selling price per unit that will enable the company to break even if the variable costs

amount to R$260$ per unit. $($Ignore the contribution margin ratio of $40\%.)(4$ marks$)$

INFORMATION

The following information regarding a product manufactured by Abel Limited is available:

Fixed costs per annum R$2000000$

Selling price per unit R$400$

Contribution margin ratio $40\%$

Expected sales are $20000$ units