Zion Ltd manufactures and sells three products with the following selling prices and variable costs:

The company is considering expenditure on advertising and promotion of Product A. It is hoped that such expenditure, together with a reduction in the selling price of the product, would increase sales. Existing annual sales volume of the three products is:

Product A 460,000 units

Product B 1,000,000 units

Product C 380,000 units

If $60,000 per annum was to be invested in advertising and sales promotion, sales of Product A at reduced selling prices would be expected to be:

590,000 units at $2.75 per unit

or 650 000 units at $2.55 per unit

Annual fixed costs are currently $1,710,000 per annum.

Required:

1. 1. Calculate the current break-even sales revenue of the business.
2. 2. Advise the management of Zion Ltd as to whether the expenditure on advertising and promotion, together with selling price reduction, should be introduced on Product A.
3. 3. Calculate the required unit sales of Product A, at a selling price of $2.75 per unit, in order to justify the expenditure on advertising and promotion.

 

Transcribed Image Text:

Selling price Variable cost Product A $/unit 3.00 1.20 Product B $/unit 2.45 1.67 Product C $/unit 4.00 2.60 Selling price Variable cost Product A $/unit 3.00 1.20 Product B $/unit 2.45 1.67 Product C $/unit 4.00 2.60

Answer rating: 100% (QA)

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