QUESTION ONE

$(25$ MARKS$)$

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

$1\mathrm{.}1$ Calculate the contribution margin ratio and thereafter use this ratio to determine the sales value required to

$(5$ Marks$)$

achieve an annual operating profit of R$1200000.$

$1\mathrm{.}2$ Calculate the margin of safety $($as a percentage$)$ for $2015.$

$(5$ Marks$)$

$1\mathrm{.}3$ Suppose Colbert Enterprises is considering a R$20$ per unit decrease in the selling price of the product, with

$(10$ Marks$)$

the expectation that this would increase annual sales by $25\%.$ Is this a good idea? Motivate your answer with the relevant calculations.

$1\mathrm{.}4$ What price does Colbert Enterprises have to charge for each unit of the product to breakeven, if all $28000$

$(5$ Marks$)$

units produced are sold?

INFORMATION

Colbert Enterprises produces a single product. The following information for $2015$ is available:

Fixed manufacturing costs per year

Variable manufacturing costs per unit

Selling price per unit

Marketing costs:

Advertising

Sales personnel's salaries and commission

Administration costs:

Salaries

Other office costs

R$480000$

R $76$

R$200$

R$14000$ per month

R $40000$ per month plus $6\%$ of sales

The number of units expected to be produced and sold during $2015$ is $28000.$

QUESTION $2$

$(25$ MARKS$)$

REQUIRED:

Calculate the following from the information given below:

$2\mathrm{.}1\mathrm{.}1$ Accounting Rate of Return $($on average investment$)$

$(5$ Marks$)$

$2\mathrm{.}1\mathrm{.}2$ Calculate the Internal Rate of return. Use interpolation to arrive at your answer.

$(10$ Marks$)$

INFORMATION

Conquesta Limited is considering the purchase of Machine $x,$ details of which are provided below: