Accounting for Decision Making and Control

Rozar Ltd (RL) specialises in the manufacturer of luxury furniture for the gaming market. It is considering launching a new range of furniture. Based on market research performed, the company has estimated the following: Selling price Units Gaming chair 2,800 380 Message chair 3,200 420 Standing Desk 3,600 400 Estimated production costs per unit: Material Labour Variable overhead Fixed overhead Gaming chair (S) Message chair ($) Standing Desk (S) 300 400 500 800 900 975 220 220 245 35 35 40 There are the following additional information: Labour costs are split into 40% variable and 60% fixed. . Fixed overheads are absorbed on the basis of units produced. All fixed costs are incremental, i.e. if any of the new range of products is launched, all of the fixed costs would be incurred for the whole range. The management of RL would like to know if the new range will breakeven prior to committing to production. Required: (Note: Round your answers to 4 decimal places.) (a) Calculate and determine the break-even points in sales dollars and units) for each product type, assuming a constant sales mix. (15 marks) Explain by showing relevant computations, how your answer to part (a) would change if the constant sales mix assumption is lifted. (6 marks) (b) (c) List four (4) key assumptions underlying a multiproduct break-even analysis, and discuss how realistic they are in this case. (4 marks)