QUESTION 4:

BREAK-EVEN ANALYSIS

(20 MARKS)

REQUIRED

Study the information provided below and answer the following questions independently:

4.1 Calculate the expected total marginal income and net profit/loss. (5)

4.2 Calculate the break-even quantity. (3)

4.3 Calculate the break-even value, if the fixed costs are 10% greater than anticipated (4)

4.4 Calculate the number units required to break-even if the selling price is reduced by R400, and sales commission is calculated at 8% of the selling price. (4)

4.5 Suppose Jinsem Manufacturers wants to make provision for an increase in advertising of R250 000 and a drop in the selling price by R100 per unit, with the expectation that sales will increase by 200 units. Will profitability improve? Motivate your answer with the relevant calculations. (4)

INFORMATION

Jinsem Manufacturers plans to start Project Jin and the following information is applicable to the project for the first financial year:

Estimated sales for the financial year 2 000 units

Selling price per unit R7 800

Direct material cost per unit R2 200

Direct labour cost per unit R1 580

Variable production overhead cost per unit R900

Fixed production overheads R2 210 000

Fixed selling and administrative expenses R1 300 000

Sales commission per unit R780