Question 1

The Ebby Co. manufactures a single product, NX081. Data for the product are as follows:

N (per unit) Selling price 200

Variable material cost 40 Variable labour cost 30 Variable production overheads 20

Total fixed cost is N1,980,000

Required:

1. a) Number of units to break-even

2. b) Sales at break-even point

3. c) Contribution to sales ratio

4. d) What number of units will need to be sold to achieve a profit of at least N499,400?

5. e) What level of sales will achieve a profit of at least N499,400?

6. f) If the tax rate is 25%, how many units will need to be sold to make a profit after tax of N600,000 per annum?

7. g) To boost sales, the company proposes a sales commission of 5% of selling price. If the selling price cannot be increased what will be the new number of units required to maintain a profit of N600,000 per annum? (ignore tax).

Question 2

Tesla Trading Ltd has two (2) divisions, Photovoltaic Equipment and High-Tech Batteries. The following information is provided for both divisions:

Sales (N) Costs (N) Current assets (N) Non-current Assets (N)

High-Tech Batteries 45,000,000 34,500,000 7,500,000 22,500,000

Photovoltaic Equipment 30,000,000 20,250,000 6,000,000 9,000,000

Controllable costs are typically 75% of divisional costs, the balance of 25% being allocated overheads from the head office. The overall company cost of capital is 15%. Divisions are treated as investment centres.

Required:

a) Compute the following for the divisions and comment on your result;

1. Absolute profit

2. Return on investment

iii. Residual income b) What are cost centres, profit centres and investment centres in divisionalized firms?