MANCOSA: BBA YEAR 2 52 QUESTION 3 3.1 REQUIRED (20) Use the information provided

Question

MANCOSA: BBA YEAR 2 52 QUESTION 3 3.1 REQUIRED (20) Use the information provided below to calculate the following 3.1.1 Break-even quantity if neither proposal is implemented 3.1.2 3. The expected total net profit or loss of each proposal. 1.3 Break-even value using the marginal income ratio, if Proposal A is implemented. INFORMATION The following budgeted information for the year ended 30 June 2019 is provided by Citi Ltd, a manufacturer of a single product: R2 400 000 Sales (40 000 units X R60 per unit) R1 440 000 R799 200 R160 800 Total variable costs Total fixed costs Net profit The sales director suggests two proposals to improve the expected net profit: Proposal A: involves launching an improved marketing campaign. This would involve a single additional fixed cost of R40 800 for advertising. Sales commission will increase by R6 per unit. Sales volume is expected to increase by 20% above the budgeted sales of 40 000 units with no change in the unit selling price. Proposal B: involves a 10% reduction in the unit selling price. Fixed selling overheads will be expected to reduce by R120 000. The sales volume is expected to increase to 48 000 units.

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer    Statementshowing Computations Paticulars Amount Sales        2,400,000.00 Less Variable Expenses      (1,440,000.00) Contribution Margin            960,000.00 Fixed cost          (799,200.00) Net profit            160,800.00 CM per unit = 960,000/40,000                       24.00 Break even Quantity = 799,200/24              33,300.00 3.1.2 Proposal A Proposal B Sales Proposal A = 48000*60 Proposal B = 48000*54        2,880,000.00                 2,592,000.00 Less Variable Expenses Proposal A = (36 + 6)*48000 proposal B =48000*36      (2,016,000.00)               (1,728,000.00) Contribution Margin            864,000.00                     864,000.00 Fixed cost Proposal A = 799,200+40,800 Proposal B =799,200 - 120,000          (840,000.00)                   (679,200.00) Net profit              24,000.00                     184,800.00 3.1.3 CM Ratio = 864,000/2880,000 30.00% Break even value = 840,000/30%        2,800,000.00

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