Hi there. I found this problem challenging, If you could please help, I'll apreciate it very much. Thank you!

New Technology Ltd. was established in 1980s to assembly video cassette recorders (VCRs). There is now increased competition in its markets and the company expects to find it difficult to make an acceptable profit for next year. You have been appointed as an accounting technician at the company, and have been given a copy of the draft budget for the next financial year.

Draft budget for 12 months to 30 June:

	($Million)	($Million)
Sales revenue		960.00
Cost of sales
Variable assembly materials	374.40
Variable labour	192.00
Factory overhead - variable	172.80
- fixed	43.00	(782.20)
Gross profit		177.80
Selling expenses - commission	38.40
- Fixed	108.00
Administration expenses - fixed	20.00	(166.40)
Net profit before tax		11.40

The following information is also supplied to you by the companys financial controller, John Davies:

Planned sales for the draft budget in the year to 30 June are expected to be 25% less than the total of 3.2 million VCR units sold in the previous financial year;

The company operates a just-in-time inventory control system, which means it holds no inventories of any kind;

If more than 3 million VCR units are made and sold, the unit cost of assembly materials falls by $4 per unit;

Labour and variable overhead per unit remain constant within the maximum capacity;

Sales commission is based on the number of units sold not on sales revenue;

The draft budget assumes that production will only be at two-thirds of maximum capacity;

Sales above maximum capacity are not possible.

John Davies explains that the Board is not happy with the profit projected in the draft budget, and that the sales director, Ann Levis, has produced three proposals to try and improve matters.

Proposal A involves launching an aggressive marketing campaign:

o This would involve a single additional fixed cost of $14 million for advertising; and

o There would be a revised commission payment of $18 per unit sold; and

o Sales volume would be expected to increase by 10% above the level projected in the draft budget, with no change in the unit selling price.

Proposal B involves a 5% reduction in the unit selling price. This is estimated to bring the sales volume back to the level in the previous financial year.

Proposal C involves a 10% reduction in the unit selling price. Fixed selling overheads would also be reduced by $45 million. If proposal C is accepted, the sales director believes sales volume will be 3.8 million units.

i) Calculate the planned sales volume set in the draft budget, and maximum capacity at which New Technology Ltd. can produce?

Planned sales volume set in the draft budget.

Maximum production capacity at New Technology Ltd.

ii) Calculate the draft budgets contribution margin per unit, and break-event point in units and sales dollars.

Draft budget's contribution margin per unit.
				$ Million	$ Million
Calculate the draft budget's break-event point in units and sales dollars.

iii) For each of the three proposals, calculate the

(a) Change in profits compared with the draft budget

(b) Break-even point in units and sales dollars

Proposal A - change in profit and BEP in units and sales dollars

Proposal B - change in profit and BEP in units and sales dollars

Proposal C - change in profit and BEP in units and sales dollars

iv) Recommend which proposal, if any, should be accepted on financial grounds.

v) Identify three non-financial issues to be considered before a final decision is made.