QUESTION 3 (20 Marks)

3.1 REQUIRED Calculate the following from the information provided below:

3.1.1 Break-even value using the marginal income ratio (4 marks)

3.1.2 Margin of safety (in units) (4 marks)

3.1.3 Break-even quantity if a sales commission of 20% is introduced. (4 marks)

INFORMATION Ascot (Pty) Ltd manufactures a single product and the following budget has been produced by the management accountant: Sales at R250 per unit R1 000 000 Variable costs R600 000 Fixed manufacturing, administrative and marketing costs R250 000 All the units produced are expected to be sold.

3.2 REQUIRED Use the information provided below to answer the following questions independently:

3.2.1 If Kempster Limited decides on a profit objective of R400 000, calculate the target sales volume. (4 marks)

3.2.2 Calculate the total Marginal Income and Profit/Loss if the company decides to reduce the selling price to R28 per unit. (4 marks)

INFORMATION : Kempster Limited expects to incur the following costs to produce and sell 20 000 units of its product at R30 each:

Variable manufacturing cost R14 per unit

Fixed manufacturing cost R100 000

Variable marketing cost 20% of sales

Fixed marketing and administrative cost R40 000