QUESTION 3

(20 Marks)

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

3.1 Calculate the margin of safety (in Rands).

(4 marks)

3.2 Use the contribution margin ratio to determine the sales value that is required to achieve an

(4 marks)

operating profit of R400 000.

3.3

soose be manies ma or mats. To compensa 0% is the company anst desse (4 marks)

the selling price by R7 per unit. Will the operating profit increase? Show your calculations.

• 3.4 Would you recommend an advertising campaign costing R20 000 that would increase the sales (4 marks) volume by 10%? Motivate your answer.
• 3.5 Calculate the selling price per unit that will enable the company to earn an operating profit of R195 (4 marks) 000.

INFORMATION

The following budgeted information regarding a product produced by Abbot Enterprises is available:

The productie pet unis srus. he males is lie in the manufacture of the product cos aid er un. tre

selling costs are estimated at R10 per unit sold. Fixed manufacturing overheads and fixed administrative costs are expected to cost R300 000 and R180 000 respectively. Production and sales are estimated at 15 000 units.