PLEASE SHOW WORKING AND FORMULA

Question 1

MB International produces and sells three different types of mountain bikes. Information regarding the three models is shown below:

	Pro	Intermediate	Standard
Units sold	5,000	10,000	25,000
Selling price	$800	$500	$350
Variable cost	$500	$300	$250

The companys total fixed costs to produce the bicycles are $7,500,000.

Required:

a) Calculate the sales mix as a function of units sold for the three products (2 marks)

b) Calculate the weighted average unit contribution margin ( 3 marks)

c) Calculate the total number of units that the company must sell in order to breakeven (4 marks)

d) Determine the number of units of each model that the company must sell to breakeven (6 marks)

e) If a management chooses to reduce its selling price to match that of a competitor, briefly explain how this will affect the breakeven point. (4 marks)

f) Outline three assumptions of cost-volume profit analysis ( 6 marks)

Question 2

Tracking Ltds pro forma income statement for 2019 shown below:

	Total ($)	Unit ($)
Sales revenue (280,000 units)	7,000,000	$25.00
Less: Variable manufacturing costs Variable selling costs	3,080,000 980,00	$11.00 $3.50
Contribution	$2,940,000	10.50
Less: Fixed manufacturing overheads Fixed selling and Admin overheads	1,500,000 850,000
Net Income	$590,000

Required:

a) Compute the contribution margin ratio (2 marks)

b) Calculate the breakeven sales revenue (round to the nearest $) (2 marks)

c) Compute the margin of safety, based on the estimated sales revenue for 2019. (2 marks)

d) Prepare an income statement showing net income if the firm sold 350,000 units in 2019. (6 marks).

e) The business wishes to earn an after-tax profit of $2,500,000 in 2019. How many units would it have to sell? Assume a tax rate of 25%. (4 marks)

f) Tracking has been advised that it could sell 10% more units if it did the following:

i. Reduce selling price by 5%

ii. Hire two more salesmen, who would be paid $35,000 annually

iii. Use different materials, which would reduce variable manufacturing costs by 8%. Compute the companys breakeven units, assuming that the new plans were implemented (9 marks)

Question 3

A restaurant with an average cheque of $700 per guest has the following average quarterly figures.

Sales revenue $5,000,000

Variable cost $2,700,000

Fixed cost $1,200,000

Required:

a) Calculate the breakeven sales revenue

b) Calculate the breakeven sales units

c) If actual sales revenue were $4,000,000 what would the restaurant operating income be? How many guests would this require?

d) What sale revenue must be achieved to provide $1,700,000 Net Income after tax in the upcoming quarter, assuming a tax rate of 35%?

Prepare a contribution margin income statement to confirm the calculated required sales return.