12.1 The summarized trading and profit and loss account of Rubber Ltd for 20X1 and its summarized balance sheet at 31 December 20X1 are as follows:

Trading and profit and loss account for 20X1

£

Sales 180,000 Cost of sales −126,000 Gross profit 54,000 Expenses (fixed) −39,000 Net profit 15,000 Note A dividend of £10,000 is proposed for 20Xl.

Balance sheet as at 31 December 20Xl

£ £

Fixed assets 113,000 Current assets 70,000 Less: Creditors due within one year General − 23,000 Dividend − 10,000

− 33,000 Working capital 37,000 150,000 Financed by:
Share capital 100,000 Retained profit 50,000 150,000 The company could expand production to a sales level of £255,000 with no increase in fixed expenses and the cost of sales would remain the same percentage of sales as for 20X1.

(a) Calculate the gross profit percentage, net profit as a percentage of sales and the return on capital employed for 20X1.

(b) A calculation of the level of sales that would have been necessary to increase the return on capital employed by 2 per cent.