Reju Ltd produces and sells bottles of non-alcoholic wine. Price and cost data are as follows:...

 

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Reju Ltd produces and sells bottles of non-alcoholic wine. Price and cost data are as follows: Sales price per bottle Variable costs per bottle: Direct material Direct labour Overhead Selling costs Total variable costs per bottle Total annual fixed costs Tax rate Current annual sales Required (show all working): $29.50 $6.30 $4.00 $3.20 $1.10 $14.60 $770,000 30% 120,000 units 1. Calculate the firm's current margin of safety (2 marks) 2. Calculate how many units will the company have to sell to earn a profit of $500,000 after tax? (2 marks) 3. The sales manager forecasts that customer demand will be only 40,000 bottles next year. Assuming that the pricing and fixed costs structure remains the same, calculate the amount by which variable costs will have to be reduced in order for the firm to break-even? (3 marks) Activate Wind Go to Settings to ac 4. When considering whether to reduce variable costs, what are two qualitative factors should managers take into account? Why? (3 marks) Reju Ltd produces and sells bottles of non-alcoholic wine. Price and cost data are as follows: Sales price per bottle Variable costs per bottle: Direct material Direct labour Overhead Selling costs Total variable costs per bottle Total annual fixed costs Tax rate Current annual sales Required (show all working): $29.50 $6.30 $4.00 $3.20 $1.10 $14.60 $770,000 30% 120,000 units 1. Calculate the firm's current margin of safety (2 marks) 2. Calculate how many units will the company have to sell to earn a profit of $500,000 after tax? (2 marks) 3. The sales manager forecasts that customer demand will be only 40,000 bottles next year. Assuming that the pricing and fixed costs structure remains the same, calculate the amount by which variable costs will have to be reduced in order for the firm to break-even? (3 marks) Activate Wind Go to Settings to ac 4. When considering whether to reduce variable costs, what are two qualitative factors should managers take into account? Why? (3 marks)

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Certainly Lets solve this problem stepbystep 1 Calculating the firms current margin of safety Margin ... View the full answer