QUESTION $4$

$(20$ Marks$)$

Study the information provided below and answer the following questions.

INFORMATION

PQM Limited manufactures and sells a single product. Its budgeted sales for the next year are $40000$ units. The product sells for R$360.$

$\backslash$table$[[$Variable manufacturing and non$-$manufacturing costs are:,$*],[$Direct materials per unit,R$90],[$Direct labour per unit,R$59],[$Variable manufacturing overhead per unit,R$10],[$Variable administration overhead per unit,R$25],[$Sales commission,$10\%$ of sales$],[$Fixed expenses are estimated for the year as:$,$R$],[$Fixed manufacturing overhead,$1800000],[$Fixed selling and distribution costs,$1600000],[$Fixed administration costs,$1200000]]$

REQUIRED:

Using PQM$\text{'}$s budgeted data for the upcoming year, answer each of the following independently:

$4\mathrm{.}1$ Calculate the sales value, total contribution margin, and operating profit if all $40000$ units are

$(4$ Marks$)$ manufactured and sold next year.

$4\mathrm{.}2$ Calculate the implied break$-$even selling price per unit if all $40000$ units are produced and sold next year

$(4$ Marks$)$

$($round off answer to two decimal places$).$

$4\mathrm{.}3$ Based on PQM$\text{'}$s budgeted operational data, calculate the break$-$even quantity and the margin of safety

$(4$ Marks$)$

as a percentage.

$4\mathrm{.}4$ The cost accountant at PQM Limited projects that incorporating a state$-$of$-$the$-$art technological innovation

$(4$ Marks$)$

into the product design will allow for a $10\%$ premium on the budgeted selling price. However, this new design will increase variable manufacturing costs by $50\%$ and incur an additional fixed cost of R$200000.$ Calculate the new operating profit.

$4\mathrm{.}5$ The sales director is considering reducing the selling price to R$350$ and increasing the sales commission

$(4$ Marks$)$

to $12\%$ of sales, expecting a $10\%$ increase in sales volume. Assess whether this is a sound strategy.

Modern Business Machines $($MBM$)$ sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after$-$sales service to its customers. The after$-$sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine. The company's existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the service department's support activities to each size of machine.

The service manager has suggested that the copy charge should more accurately reflect the costs involved. The company's accountant has decided to implement an activity$-$based costing system and has obtained the following information about the support activities of the service department:

$\backslash$table$[[$Activity$,$Cost Driver,Overheads per annum, $R$