Question$125$ MARKS

Ndlovu Industries developed the following income statement using a contribution margin approach:

NDLOVU INDUSTRIES

PROJECTED INCOME STATEMENT FOR THE CURRENT YEAR ENDING DECEMBER $31$

Sales

R$750000$

Less variable costs:

Variable manufacturing costs

R$280000$

Variable selling costs

$120000$

Total variable costs

$400000$

Contribution margin

R$350000$

Less fixed costs:

Fixed manufacturing costs

R$130000$

Fixed selling and administrative costs

$80000$

Total fixed costs

$210000$

Operating income $($profit$)$

R$140000$

The projected income statement was based on sales of $100000$ units. Ndlovu has the capacity to produce $120000$ units during the year.

Required:

a$.$

Determine the break$-$even point in units. b$.$ The sales manager believes the company could increase sales by $8000$ units if advertising expenditures were increased by R$22000.$ Determine the effect on income if the company increases advertising expenditures.

c$.$

What is the maximum amount the company could pay for advertising if the advertising would increase sales by $8000$ units?