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Could someone answer for me this question Break-Even Analysis You are employed by Monarch Ltd which manufactures specialist hydraulic seals for the aircraft industry. The
Could someone answer for me this question
Break-Even Analysis You are employed by Monarch Ltd which manufactures specialist hydraulic seals for the aircraft industry. The company has developed a new seal with the following budged data. Variable cost per unit Direct Materials Direct Labor Variable Overheads The draft budget for the following year is as follows: Production and Sales 60,000 units Fixed costs: Production 260,000 Administration 90,000 Selling, marketing and distribution 100,000 Contribution 840,000 Certain departmental managers within the company believe there is room for improvement on the budgeted figures and the following options have been suggested. (0) The sales manager has suggested that if the selling price was reduced by 10%, then an extra 30% unit could be sold. The purchasing manager has indicated that if materials requirements were increased in line, then a materials price reduction of 6.25% could be negotiated. With this additional output, fixed production costs would increase by 30,000, administration by 5,000 and selling, marketing and distribution by 10,000. Other costs would remain unchanged. The export manager has suggested that if the company increased overseas marketing 15,000 then exports would increase from 15,000 units to 17,000 units. With this suggestion, distribution costs would increase by 12,000 and all other costs would remain unchanged. The marketing manager has suggested that if an extra 40,000 were spent on advertising, then sales quantity would increase by 25%. The purchasing manager has indicated that in such circumstances, materials costs would reduce by 0.30 per unit. With this suggestion, fixed production costs would increase by 25,000, administration by 4,000 and other selling, marketing and distribution costs by 7,000. All other costs would remain unchanged. (iii) (iv) The managing director believes the company should be aiming for a profit of 486,000. He asks what the selling price would be per unit if marketing were increased by 50.000, this leading to an estimated increase in sales quantity of 30%. Other foxed costs would increase by 67,000, whilst material price would decrease by 6.25% per unit. Al other costs would remain unchanged. Required: (a) Taking each suggestion independently compile a profit statement for options() to (i), showing clearly the contribution per unit in each case. For suggestion (iv). calculate the selling price per unit as requested by the managing director. (b) Calculate the break even quantity in units if the managing director's suggestion were implemented. Draw a contribution sales graph to illustrate your calculations. Read from the graph the profit if 60,000 units were sold. (c) Whilst marginal costing has a number of applications, it also has disadvantages In a report to the managing director, outline the main applications of marginal costing and explain its disadvantages Step by Step Solution
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