Find the optimum price and explain the financial and non-financial implications Question 2 Mary Poppins, a friend of yours, has recently set up a small business making curtains. She has supplied you with the following figures, and has asked your advice on a number of issues: Costs per month Materials Labour Production overheads Selling and distribution overheads Administration overheads 4 100 5 000 2 000 1 000 500 The above costs are based on producing and selling 1 200 pairs of curtains per month at a selling price of R15 each. 80% of labour costs are fixed, as are 75% of production overheads, 60% of selling and distribution overheads, and 100% of administration overheads, All other costs vary directly with output. e) If Mary bought another machine, she could increase her production capacity to 2 500 curtains. Repayments on the machine would be R700 per month, and she would need an extra member of staff, costing R1 000 per month. She would also have to pay a bonus to all staff of 50 cents per pair of curtains, over and above their current wages, and variable production overheads would increase by 30 cents per pair of curtains. In order to increase sales, she would have to reduce the price: she estimates demand at different price levels to be as follows PriceEstimated monthly demand R14 R13 R12 1 500 2 000 2 500 What would be the optimum price? Required: Advise Mary on each of the above points, showing your calculations, explaining both the financial and non-financial implications of each where appropriate. Find the optimum price and explain the financial and non-financial implications Question 2 Mary Poppins, a friend of yours, has recently set up a small business making curtains. She has supplied you with the following figures, and has asked your advice on a number of issues: Costs per month Materials Labour Production overheads Selling and distribution overheads Administration overheads 4 100 5 000 2 000 1 000 500 The above costs are based on producing and selling 1 200 pairs of curtains per month at a selling price of R15 each. 80% of labour costs are fixed, as are 75% of production overheads, 60% of selling and distribution overheads, and 100% of administration overheads, All other costs vary directly with output. e) If Mary bought another machine, she could increase her production capacity to 2 500 curtains. Repayments on the machine would be R700 per month, and she would need an extra member of staff, costing R1 000 per month. She would also have to pay a bonus to all staff of 50 cents per pair of curtains, over and above their current wages, and variable production overheads would increase by 30 cents per pair of curtains. In order to increase sales, she would have to reduce the price: she estimates demand at different price levels to be as follows PriceEstimated monthly demand R14 R13 R12 1 500 2 000 2 500 What would be the optimum price? Required: Advise Mary on each of the above points, showing your calculations, explaining both the financial and non-financial implications of each where appropriate