Finance and Accounting Question

5010ACC Question One SmartVehicle Plc makes and sells vehicle carpets. The Chief Executive is reviewing the budget for its luxury model which is also its best seller for the coming year as the company is considering how it might improve its performance. The original budget shows expected sales to be 50,000 units at an average price of 80. At this level of sales, variable costs will be 1,600,000 and fixed costs will be 1,400,000 I Martin Davis, the Sales Manager suggests that if the price of the car carpets were reduced by 25%, then she estimates that the sales volume would increase by 50%. Ziyou Zhang, the Marketing Manager, has a different opinion. He believes that the best way to increase sales is to have an increased marketing drive across all their current markets. He reckons that to increase sales by 20% it would need an additional marketing push costing 200,000 The board has asked for some figures and advice to help it decide which of the three strategies to adopt 2 Remain with the original budget, Adopt the sales manager's strategy, Adopt marketing manager strategy 3 (Each alternative should be considered independently) 5010ACC Required In 1200 words answer the following For each of the three strategies a) Presenting your answer in a table, use the Cost-Volume-Profit analysis model to determine: 1. The profit 2. The contribution margin ratio (cls ratio) 3. The breakeven point in 's I 4. The breakeven point in units 5. The margin of safety (as a percentage of sales revenue) 6. The sales level in number of units that would be required if the company wished to make a profit of 1,300,000 (9 marks) b) State and critically analyse FIVE assumption of the Cost-Volume-Profit analysis. (15 marks) c) Critically Evaluate the figures that you have calculated for each strategy in part (a) above, and recommend a strategy for the Board to adopt. Ensure that you fully justify your answer (7 marks) d) With examples, describe the different ways of classifying costs and explain how viewing cost in different ways assists management decision making (9 marks)