QUESTION $3$

$3\mathrm{.}1$ 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$2700000.$

$3\mathrm{.}1\mathrm{.}3$ 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 $\backslash (20\backslash \%\backslash ).$ Is this a good idea? Motivate your answer.

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 $\backslash (5\backslash \%\backslash )$ of sales. Fixed costs amount to R$2720000$ for manufacturing overheads and R$1180000$ for selling and administrative activities.