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ANSWER EITHER QUESTION ONE OR QUESTION TWO FROM THIS SECTION. YOU MUST ANSWER ALL PARTS OF THE QUESTION SELECTED QUESTION 1 ABC Ltd. manufactures Product
ANSWER EITHER QUESTION ONE OR QUESTION TWO FROM THIS SECTION. YOU MUST ANSWER ALL PARTS OF THE QUESTION SELECTED QUESTION 1 ABC Ltd. manufactures Product A. The budgeted cost and revenue data for this product are given below, based on sales of 5,000 units. Sales revenue E3,000,000 Less: Cost of goods sold E300,000 Gross margin $2,700,000 Less: Operating expenses E405,000 Income E2,295,000 The costs of goods sold consists of 200,000 of variable costs and $100,000 of fixed costs. Operating expenses consist of E250,000 of variable costs and 155,000 of fixed costs. REQUIRED: Please note: a maximum word count applies to some parts of this question. (a) Using the information provided above: (i) Calculate the total contribution. (4 marks) Using the contribution, calculate the break-even point in units and break-even point sales in pounds. (6 marks) (ii) Define the margin of safety in words and provide an example of a firm where it was important particularly during the pandemic. (8 marks; max 280 words) Based on the definition, calculate the margin of safety. (4 marks)(iii) The company received an order for 1,000 units at a price of 200. There will be no increase in fixed costs, but variable costs will increase by $10 per unit because of packaging expenses. Determine the projected increase or decrease in profits from the order, assuming there are no opportunity costs.(6 marks) (b) List THREE main assumptions you made in (a). (6 marks; max 210 words) Discuss how your assumptions may affect your conclusions from the analysis in (a). (6 marks; 210 words) Regarding your answers above, provide TWO actual examples where unrealistic assumptions mislead managers' decisions. (10 marks; max 350 words) (Total marks for question 1: 50 marks)
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