Question
Fast Fandango Ltd. manufactures a single product, a steel poker which sells for $10. At 75% capacity, which is the normal level of activity for
Fast Fandango Ltd. manufactures a single product, a steel poker which sells for $10. At 75% capacity, which is the normal level of activity for the factory, sales are $600,000.
he cost of sales are:
Prime cost $3
Production overhead $156,000 (including variable costs of $30,000)
Sales costs $80,000
Distribution costs $60,000 (including variable costs of $15,000)
Administration overhead $40,000 (including variable costs of $9,000)
The sales costs are fixed with the exception of sales commission which is 5% of sales value
Required:
a) Calculate the break-even volume of sales
b) Prepare statements to show the revenue, contribution and profit:
i. at the normal level of activity
ii. if the sales price is reduced by 5% and the sales volume thereby increased by 16 2/3% above the normal level of activity
iii. if the sales price is reduced by 7% and the sales volume thereby increased by 20% above the normal level of activity
c) calculate the C/S ratio in each instance in (b) above
d) Determine what the sales volume would need to be under the sales price arrangements in (b) (iii) for the profit to be the same as in (b) (ii).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started