1REQUIRED

1.1 Calculate the additional expenditure that the company can afford on advertising.

1.2 Calculate the total revenues at break-even using the contribution margin ratio if the sales managers proposal is rejected.

1.3 Calculate the selling price per unit that will enable the company to break-even if the sales manager's proposal is accepted.

INFORMATION

Sirloin Enterprises manufactures a product that sells for R9 each. The company presently produces and sells 90 000 units per year. Unit variable manufacturing and selling expenses are R4.50 and R0.90 respectively. Fixed costs are R226 800 for factory overheads and

R97 200 for selling and administrative activities. The sales manager haS proposed that the price be increased to R10.80 per unit. To maintain the present sales volume, advertising must be increased. The company's profit objective is 10% of sales.

Q2 REQUIRED

Suppose Mokia Limited wants to earn an operating profit of R450 000 from the battery sales. How much can it afford to spend on variable cost per unit if production and sales equal 20 000 units?

INFORMATION  Following substantial research, Mokia Limited is confident that it can make and sell a new battery with a prolonged life for mobile phones (cell phones). The management anticipates the market demand for the new battery to be 20 000 units per year if the battery is priced at R75 per unit. The company's accountants and engineers estimate that the fixed costs of producing between 18 000 and 24 000 units is R225 000.

Q3 REQUIRED

What must the contribution margin ratio be if Seagull Limited wants to increase its operating profit by 10.40 000 in 2013?

INFORMATION

During 2012 Seagull Limited had a contribution margin ratio of 30% with variable costs amounting to R700 000. In 2013 fixed costs are expected to remain at R240 000, and sales are expected to be 10% higher than 2012.