Bedford Park Limestone produces limestone sheeting used for the facings of buildings. The statement of profit or loss presented below represents Bedford Park Limestones operating results for the year just ended.

Sales PICTURE SHOWN BELOW

Less variable costs

Variable manufacturing costs

Variable selling costs Contribution margin Less fixed costs

Fixed manufacturing costs Fixed selling costs Fixed administrative costs

Net Profit

$315,000 180,000

$100,000 107,500 40,000

$900,000

495,000 405,000

247,500 $157,500

Bedford Park Limestone Contribution Margin Statement of Profit or Loss For the year ended 31 December 20X2

Bedford Park Limestone sold 1,800 tonnes of limestone sheeting during the year ended 31 December 20X2. The manufacturing capacity of the firms facilities is 3,000 tonnes par annum.

Additional information

You can ignore income taxes for the purposes of this question.

Required

1. (a) Calculate the companys break-even volume, in tonnes, for the year ended 31 December 20X2.

2. (b) What is the expected profit for the year ended 31 December 20X3 if next years estimated sales volume is 2,100 tonnes and if prices and costs stay at the same levels and rates as they were last year?

3. (c) The company has a potential overseas customer who has offered to buy 1,500 tonnes at $450 per tonne. Assume that all the firms costs would be at the same levels and rates as they were last year. What profit would the firm earn next year if it took the order and rejected some business from regular customers so as not to exceed capacity?

   (d) Bedford Park Limestone plans to market its product in a new territory. Management estimates that an advertising and promotion program costing $61,500 per annum would be needed for the next two or three years. In addition, a $25 per tonne sales commission to the sales force in the new territory, over and above the current commission, would be required. How many tonnes would have to be sold in the new territory to maintain the firms current net profit? Assume sales and costs will continue as in the year just ended in the firms established territories.

5. (e) Management is considering replacing its labour-intensive manufacturing process with an automated production system. This would result in an increase of $58,500 annually in fixed manufacturing costs. The variable manufacturing costs would decrease by $25 per tonne. Calculate the new break-even volume in tonnes and sales dollars.

6. (f) Ignore the facts presented in requirement (e). Assume that management estimates that the selling price per tonne will decline by 10 per cent next year. Variable costs will increase by $40 per tonne and fixed costs will not change. What sales volume in dollars and tonnes would be required to earn a net profit of $94,500 next year?

Bedford Park Limestone Contribution Margin Statement of Profit or Loss For the year ended 31 December 20X2 Bedford Park Limestone sold 1,800 tonnes of limestone sheeting during the year ended 31 December 20X2. The manufacturing capacity of the firm's facilities is 3,000 tonnes par annum