QUESTION 4 COST, VOLUME AND PROFIT OLD ALL, manufactures travelling bags. The re

Question

QUESTION 4 COST, VOLUME AND PROFIT OLD ALL, manufactures travelling bags. The research department has provided the following information in respect of a new design of bag which goes into p (20) roduction during the next half of the year ending 31 December 2018 INFORMATION Projected costs Sales [ 60 000 bags at R300 each ] 18 000 000 Variable costs per unit Production Marketing Administration 120 13 20 Fixed costs: Production Marketing Administration 2 100 000 1 900 000 500 000 REQUIRED 4.1 Prepare the Marginal costing Statement for the six months ending 31 December 2018. .2 Prepare a table to determine the Marginal Income Ratio 4.3 Calculate the Break-even Quantity. .4 Calculate the Break-even Value using the Marginal Income Ratio. (10) RELEVANT COSTS AND REVENUE FOR DECISION MAKING (20) QUESTION 5 5.1, OPTIMUM MIX ELITE (PTY) LTD, manufactures two basic products named ZIG and ZAG The following information has been supplied in respect of these two products ZAG ZIG R 300 (R 100) R 900 Selling price per unit Less : Variable cost per unit Contribution per unit (R 410) MachineTime required to produce one unit Maximum sales demand 2 Hours 7 Hours 12 000 units 15 000units Required Use the information provided above to determine the product mix that will maximise profits and calculate the value of the contribution that will be earned if only 80 000 machine hours are available. (13)

Explanation / Answer

As per policy, only one question is allowed to answer at a time, so answering Q4:

Q 4) 4.1) Marginal costing statement for six months ending 31 Dec 2018: Per unit Amount $ Sales revenue (60000 bags) 300 18000000 Less: Variable costs: Production 120 7200000 Marketing 13 780000 Admin 20 1200000 Total variable cost 153 9180000 Contribution 147 8820000 Less: Fixed costs: Production 2100000 Marketing 1900000 Admin 500000 Total fixed costs: 4500000 NOI 4320000 4.2) Marginal income ratio = contribution*100 / Sales = 147*100/300 = 49% 4.3) Break even quantity = Fixed costs / contribution per unit = 4500000 / 147 = 30612.24 bags 4.4) Break even value = Fixed costs / Marginal income ratio = 4500000 / 49% =9183673.47

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