Question 3

Study the information provided below and answer the following questions:

3.1.1 Calculate the break-even value if the sales managers proposal is rejected. (5)

3.1.2 Calculate the additional expenditure that the company can afford to spend on advertising,

in keeping with the sales managers proposal. (5)

3.1.3 Calculate the break-even quantity if the proposed selling price (R216) is accepted and advertising is increased by R108 000.

Information

Waddle Enterprises manufactures a product that sells for R180 each. The company presently produces and sells 30 000 units per year. Unit variable manufacturing and selling costs are R90 and R18 respectively. Fixed costs amount to R1 134 000 for manufacturing overheads and R486 000 for selling and administrative activities. The sales manager has proposed that the selling price be increased to R216 per unit. To maintain the present sales volume, advertising must be increased. This proposal is expected to result in an operating profit of R648 000.

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

3.2.1 Based on the expected sales volume, determine the sales price per unit that will allow the company to break even. (5)

3.2.2 If Obi Limited wants to target an operating profit of R243 000, calculate the target sales volume.

Information

Obi Limited is analysing the forecasts related to its new product. The following data is based on the expected sales of 40 000 units: Variable manufacturing and marketing costs per unit	R48
Fixed manufacturing costs	R500 000
Fixed marketing and administrative costs	R310 000