j47 1. Sales volume required to yield zero profit: - Fixed costs/ CM per unit - 330,000R21.50 - 20,000 units Sales volume required - 20,000 units (22,00,000) Existing sales volume = 10,000 units 1,00,000) Difference represents increase in sales volume required to make zero profit - 10,000 units 1,00,000) 2. Assuming situation (2) independent of (1) Sales volume required to eam a profit of 35,000 - R30,000 + 35,000 (publicity expenses) + 35,000 (profit))/2 - 20,000 units (2,00,000); 10,000 units (1,00,000) is the increased sales volume required. 3. Assuming (3) to be independent of situations (1) and (2). Desired sales volume to eam a profit of 34,000 - (30,000+ 34,000)/89.70 - 8) - 20,000 units (or 1,94,000). Increased sales volume required is 10,000 units. WORKING NOTE Determination of total sales revenue and selling price per unit. Total sales revenue - Total costs - Loss Total costs - FC + (VC per unit x Sales in units) 80,000 = 30,000 + (8 X 10,000) Total sales revenue = 1,10,000 - $10,000 = $1,00,000 SP per unit = 31,00,000/10,000 - $10 P.16.17 The ABC Ltd operates a restaurant with recreational facilities. The manager of the complex hav- ing 100 rooms, has asked your assistance in planning the coming year's operations. He is particularly concerned about the level of profits the firm is likely to eam. Your conversation with the manager shows that he expects occupancy to be 70 per cent during the 200-day season that it is open. All rooms would be rented for 3500 per day for any number of persons. On an average, two persons occupy a room. This is the past experience, which the manager believes is an accurate guide to the future. He further informs you that each person staying in the hotel spends 125 per day in the shops (also owned by the company) and 250 in the restaurant. There are no charges for the use of recreational facilities. Cost data are Particulars Variable cost to volume ratio Shop Restaurant Cost of goods sold 25 Supplies 50 5 5 15 10 Others For the hotel, the variable costs are $100 per day per occupied room, for cleaning. laundry, and utilities. Total fixed costs for the complex are 360,00,000 per year. You are required to do the following: 1. Prepare an income statement for the coming year based on the information given. 2. The manager believes that if room rent were reduced to 3400 per day, the occupancy would increase to 90 per cent. Will you endorse his suggestion of reducing the rent rates