QUESTION 2 (15 Marks) Dagbreek CC sells coffee beans. The company have several outlets in shopping malls across the Western Cape. However over the last 5 years average costs increased by more than 10% per annum driven primary by rental increases on rental space in the malls. As part of a revised business strategy, the CEO is considering selling beans to corporate offices around Cape Town, hoping to increase revenue. The company is considering hiring 12 sales representatives who are constantly on the road driving coffee bean sales to offices around the city The CEO of the company is considering two plans for paying his 12 sales people. The variable cost plan is based on a straight commission of R 48 per kilogram sold, and the mixed cost plan is based upon a salary of R24,500 plus a commission of R 23,50 per kilogram sold. Unit variable costs are R 210 (excluding any commission) and the fixed expenses are estimated at R 850,000 (excluding all sales people salaries)

REQUIRED Compute the point of indifference (i.e where the operating income under both plans will be indentical).

At a projected sales volume of 2,500 kilograms, which plans should Dagbreek adopt and why?

You have a meeting with the CEO. Explain to him the difference between variable costing & absorption costing.