OOO A A al 42 10 02 Edit NPS 3 50 X QUESTION 1 (22 marks) Sheefeni CC normally produces and sells 40 000 units of product A each year The company's cost structure at this level of activity is given below Per unit Total N$ NS Direct materials Direct labour Total production overheads (see note 2) Variable selling expenses Fixed selling expenses (see note 3) Total 320 000 320 000 Additional notes 1 Product A normally sells for N$35 per unit 2 It has been observed that when Sheefeni CC produces 30 000 units, their total production overheads are N$310 000 3 The fixed selling expenses have been calculated based on the normal level of activity Below are a number of questions relating to Product A Each question is independent of the others Requirement a) Assume that the company has sufficient capacity to produce 47 000 units of Product A each year The company could increase its sales by 20 above the present 40 000 units each year if it were willing to increase fixed selling expenses by one third Make a recommendation on whether the change should be effected (8 marks) b) Now assume that the company has sufficient capacity to produce 50 000 units of Product A each year The company has an opportunity to sell 10 000 units in an overseas market Import duties, foreign permits and other special costs associated with the order would total N$9 OCO The only selling costs that would be associated with this order would be N$3 50 per unit shipping cost Compute the break even selling price per unit on this order (8 marks) c) Assume you are a consultant of Sheefeni CC and you have been presented with the following information N$ Contribution margin 600 000 Less Fixed overheads (400 000) Net profit 200 000 The management of Sheefeni CC are interested in knowing how much their net profit will be if they engage in a product awareness campaign that would increase sales by 20 Explain how Page 1 of 5 BSE Tools Mobile View Share you can apply the concept of operating leverage and demonstrate to the management how operating leverage works in predicting net profit (6 marks)

Question

OOO A A al 42  10 02 Edit NPS 3 50 X QUESTION 1 (22 marks) Sheefeni CC normally produces and sells 40 000 units of product A each year  The company's cost structure at this level of activity is given below  Per unit Total N$ NS Direct materials Direct labour Total production overheads (see note 2) Variable selling expenses Fixed selling expenses (see note 3) Total 320 000 320 000 Additional notes  1  Product A normally sells for N$35 per unit  2  It has been observed that when Sheefeni CC produces 30 000 units, their total production overheads are N$310 000  3  The fixed selling expenses have been calculated based on the normal level of activity  Below are a number of questions relating to Product A  Each question is independent of the others  Requirement  a) Assume that the company has sufficient capacity to produce 47 000 units of Product A each year  The company could increase its sales by 20  above the present 40 000 units each year if it were willing to increase fixed selling expenses by one third  Make a recommendation on whether the change should be effected  (8 marks) b) Now assume that the company has sufficient capacity to produce 50 000 units of Product A each year  The company has an opportunity to sell 10 000 units in an overseas market  Import duties, foreign permits and other special costs associated with the order would total N$9 OCO  The only selling costs that would be associated with this order would be N$3 50 per unit shipping cost  Compute the break even selling price per unit on this order  (8 marks) c) Assume you are a consultant of Sheefeni CC and you have been presented with the following information  N$ Contribution margin 600 000 Less  Fixed overheads (400 000) Net profit 200 000 The management of Sheefeni CC are interested in knowing how much their net profit will be if they engage in a product awareness campaign that would increase sales by 20   Explain how Page 1 of 5 BSE Tools Mobile View Share you can apply the concept of operating leverage and demonstrate to the management how operating leverage works in predicting net profit  (6 marks)

Accepted Answer

The Answer is in the image, click to view ...

Question

& OOO A A al 42% 10:02 Edit NPS 3 50 X QUESTION 1 (22 marks) Sheefeni CC normally produces and sells 40 000 units

Step by Step Solution

Step: 1

Get Instant Access to Expert-Tailored Solutions

Step: 2

Step: 3

Ace Your Homework with AI

Students also viewed these Accounting questions

Question

Question

Question

Question

Question

Question

Question

Question

Question