XYZ Ltd produces two products and the following budget applies for 20 × 2:

You are required to calculate the break-even points for each product and the company as a whole and comment on your findings.

At a recent board meeting the directors discussed the year’s results, following which the chairman asked for suggestions to improve the situation.
You are required as management accountant, to evaluate the following alternative proposals and to comment briefly on each:

(a) Pay salesmen a commission of 10% of sales and thus increase sales to achieve break-even point. (5 marks)

(b) Reduce selling price by 10%, which it is estimated would increase sales volume by 30%. (3 marks)

(c) Increase direct wage rates from £4 to £5 per hour, as part of a productivity/pay deal. It is hoped that this would increase production and sales by 20%, but advertising costs would increase by £50 000. (4 marks)

(d) Increase sales by additional advertising of £300 000, with an increased selling price of 20%, setting a profit margin of 10%.
(8 marks)LO1

Transcribed Image Text:

Product X Product Y () () Selling price Variable costs Contribution margin 6248 Fixed costs apportioned 100000 Units sold 2488 200000 70 000 30 000