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BREAK-EVEN POINT AND CVP ANALYSIS (6 MARKS) During the year ended 30 June 2020, Candy Ltd showed a net profit of $7,308. Compared to the
BREAK-EVEN POINT AND CVP ANALYSIS (6 MARKS) During the year ended 30 June 2020, Candy Ltd showed a net profit of $7,308. Compared to the previous year ended 30 June 2019 when a profit of $50,721 was achieved, the decrease in performance was worrying. You have the following information: Year ended 30 June Year ended 30 June 2019 2020 Number of units produced and sold 11,429 9,932 Total sales revenue $560,021 $486,668 $479,360 Total costs $509,3001 Net profit / loss $50,721 $7,308 In order to improve the performance and achieve a target profit of $17,424, the following proposals are put forward: 1. improve packaging of the product at a cost of $7 per unit. 2. launch an advertising campaign costing $151,008. 3. buy more efficient machinery to reduce the variable costs per unit by $10. Fixed costs at present include $140,360 per year in depreciation expense in respect to the machinery to be replaced. IMPORTANT: - In answering the questions below, please don't include the dollar sign ($) or any thousands separator - i.e. $12,000 should be written as 12000. - Round any non-integer amounts to the nearest 2 decimal places. Please don't include any decimal places for integer amounts. REQUIRED: (a) Calculate the variable costs per unit and the total fixed costs incurred in the years ended 30 June 2019 and 30 June 2020, assuming that they are constant during the two years. (1 marks) Variable costs per unit = $ Total fixed costs= $ (b) Calculate the break-even point in both units and dollars. (1 marks) Break-even (in units) = units Break-even (in dollars) = $ (c) Calculate the number of units necessary to be produced and sold in order to achieve the profit target of $17,424 under each of the first 2 proposals. (2 marks) Number of units needed to achieve target profit under the first proposal = units Number of units needed to achieve target profit under the second proposal = units (d) Calculate the new fixed costs and show the amount that should be invested in the new machinery under proposal 3 to achieve the target profit of $17,424, assuming that depreciation of the new machinery is calculated as 20% of the cost per year and the output is 12,197 units. (2 marks) New total fixed costs = $ The amount that should be invested in the new machinery under the third proposal = $
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