Beyonca Ltd is a small manufacturing business which processes and sells a special type of herbal tea to distributors as well as retail outlets Below are current selling prices and variable costs per kg, as well as fixed costs for the current period Selling price 6 60 Variable Tea leaves 1 4 Processing 0 6 Packaging 0 55 Distribution 0 2 Fixed Retailers shelving fee 60,000 Production Equipment 15,000 Promotional costs 80,000 To boost profits for the future period, a marketing plan has been completed which involves spending 15,000 more on advertising and raising the selling price by 5 It has been estimated that variable costs will need to increase to 3 per kg because of production and sales output increasing from 90,000 kg to 105,000 kg To increase productive capacity, a one off cost of 22,000 will be incurred a Calculate the current break even point, both in units and sales revenue b Illustrate your answers to (a) above on a break even chart that shows revenue, total cost and fixed cost lines with an appropriate legend for each Your chart should be labelled with an arrow that points to the break even point as well as to the margin of safety area c i According to Beyonca Ltds marketing plan, what would be the new profit or loss ii What would be the new break even point, in units, for the year d From the marketing plan, compare the difference in the estimated increase in selling price per unit to the estimated increase in variable costs per unit from the current situation Discuss why this may have occurred and the key factors which may impact on the success of the marketing plan e The marketing plan has not included 4,250 that has been charged on advisory fees While the advisory accountants have not completed their work, their invoice has been accepted for the full amount and payment is due to take place in the future period that is relevant to the marketing plan Discuss the relevance of this new information to the decision whether or not to go ahead with the new marketing plan

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 01, 2024

Beyonca Ltd is a small manufacturing business which processes and sells a special type of herbal tea to distributors as well as retail outlets. Below

Beyonca Ltd is a small manufacturing business which processes and sells a special type of herbal tea to distributors as well as retail outlets.

Below are current selling prices and variable costs per kg, as well as fixed costs for the current period.

Selling price	6.60
Variable
Tea leaves	1.4
Processing	0.6
Packaging	0.55
Distribution	0.2
Fixed
Retailers shelving fee	60,000
Production Equipment	15,000
Promotional costs	80,000

To boost profits for the future period, a marketing plan has been completed which involves spending 15,000 more on advertising and raising the selling price by 5%. It has been estimated that variable costs will need to increase to 3 per kg because of production and sales output increasing from 90,000 kg to 105,000 kg. To increase productive capacity, a one-off cost of 22,000 will be incurred.

a.Calculate the current break-even point, both in units and sales revenue.
b.Illustrate your answers to (a) above on a break-even chart that shows revenue, total cost and fixed cost lines with an appropriate legend for each. Your chart should be labelled with an arrow that points to the break-even point as well as to the margin of safety area.
c.
- i.According to Beyonca Ltds marketing plan, what would be the new profit or loss?
- ii.What would be the new break-even point, in units, for the year?
d.From the marketing plan, compare the difference in the estimated increase in selling price per unit to the estimated increase in variable costs per unit from the current situation. Discuss why this may have occurred and the key factors which may impact on the success of the marketing plan.
e.The marketing plan has not included 4,250 that has been charged on advisory fees. While the advisory accountants have not completed their work, their invoice has been accepted for the full amount and payment is due to take place in the future period that is relevant to the marketing plan. Discuss the relevance of this new information to the decision whether or not to go ahead with the new marketing plan.