Question

QUESTION 2 THE FOLLOWING INFORMATION IS FOR AGRICOOL FARMING Sales (30 000 units X R10 per unit) R300 000 Total variable cost (30 000 units X R4,50 per unit) R135 000 Total fixed costs R65 000 Net profit R100 000 The sales forecast is 20% less than the actual sales for the year ended 31 July 2008. The sales director produced three proposals to improve the position: Proposal A. involves launching an aggressive marketing campaign. This would involve a single additional fixed cost of R15 000 for advertising. Sales commission will increase by R1 per unit. Sales volume is expected to increase by 10% above the budgeted sales of 30 000 units with no change in the unit selling price. Proposal B involves a 10% reduction in the unit selling price. Fixed selling overheads will also reduce by R10 000. The sales volume is expected to be 33 000 units. Proposal C involves a 5% reduction in the unit selling price and this is estimated to bring the sales volume back to the level as the year ended 31 July 2008. Required For each of the three proposals, calculate the: 1. Change in profits compared to the budgeted figures 2. Break-even quantity (answer expressed to the nearest whole number).

Answer 1

Please refer below handwritten notes

DATE Proposal A - R 330,000 Sales (130,000x110%) X RIO) Less - Total variable cost (330,000) *(R4.5+R1) sales commission. Total fixed cost ya(R 181.500 CR 65,000+R15,000) 47 (R80.000) advertising Net Profit R68,500 Break Even Quantity: Contribution per unit Selling price - Variable cost pou per unit = RIO - R5.5 = R4.5 Break Even aty. Fixed costs Contribution per unit R 80,000 R4.5 = 17,778 units