Question 1 (Marks: 10)

Chill Ltd sold 125 000 of its deluxe rooms last month in Cape Town. The variable cost involved in a

one-night booking is R800 and the contribution ratio is 60%. The fixed costs per annum are

R144 000 000 and accrues evenly throughout the year.

Chill Ltd has also incurred the following additional costs:

Interest on corporate bonds: R2 500 000

Preference dividends: R7 500 000

The company has 40 000 000 ordinary shares in issue and is subject to a corporate tax rate of 28%

Required:

Q.1.1 Calculate the break-even units for the month. (5)

Q.1.2 At the current monthly unit sales level, calculate the degree of operating leverage. (5)