1: Wanda runs a home laundry service, Kwicky Washy Ltd, where customers’ laundry is collected, washed, ironed, anddelivered back to them for a set charge per bag. The service is offered to customers only within a limited radius of WorkshopCity Centre.The following outgoings are associated with her business:- Petrol costs average R2 per customer.- The average customer sends two bags to the laundry service.- The electricity costs for washing and drying are R1 per bag, and detergent costs 50 pence per bag.Wanda employscasual staff to handle, fold, and iron the laundry. They are paid R8 per hour, and each bag takes 1 hour,on average, of their time.- These staff are paid only for the hours they actually work.Wanda acts as delivery driver, bookkeeper, and salesperson. She is paid a salary of R22 000 per annum.- The delivery van depreciates at the rate of R4 000 per annum and the laundry machines (washers and dryers) at 20pence per bag washed.- Other van expenses include tax, insurance, and maintenance and amount to R2 000 per annum.
Required:1.1 Identify which of the costs are fixed and which are variable. (8 marks)1.2 Calculate the variable cost per bag of laundry laundered. (6 marks)
Question 2: Naidoo Ltd, a retailer of men’s shirts located around Durban, is investigating the likely sales prospects for next year. Theoriginal projection expected that 75 000 shirts would be sold at R10.60 each. The variable costs would be R4.20 per unitand the relevant fixed costs were expected to be R220,000.Three possible alternative strategies have been suggested:Option 1 The managing director thinks that more could be sold ifthe price were reduced by 5%.Option 2 The production manager thinks that the price could beincreased by 10% with only a small loss in sales.Option 3 The sales manager proposes that the variable cost shouldbe increased by 20p per unit as commission to the salesforce, with a consequent saving in fixed costs of R15 000.
Required:
2.1 Calculate the break-even point if the original proposal is adopted (2 marks)
2.2 Calculate the anticipated profit if the original proposal is adopted (2 marks)Calculate the levels of sales required under the proposals 1 and 2 to achieve the profit computed in(1) above
.2.3 (5 marks)Calculate the break-even point if the sales manager's proposal is accepted and compare this withthe break-even point under the original proposal.
2.4 (4 marks)2.5 List three assumptions of Cost Volume Profit analysis. (3 marks)