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Question 2 (20 marks) Larissa sells a single product, MasterChef Salsa Sauce at the local markets and online. Estimated data relating to 2019 is as
Question 2 (20 marks) Larissa sells a single product, MasterChef Salsa Sauce at the local markets and online. Estimated data relating to 2019 is as follows: Annual sales 2,500 bottles Selling price per bottle $30 Cost price per bottle Annual fixed marketing costs $2,000 Variable marketing costs per bottle Annual fixed administration costs $9,500 Requirements: a. Calculate total fixed costs. (3 marks) b. Calculate unit contribution margin per bottle. (3 marks) Calculate the breakeven point in units for 2019. (3 marks) Calculate the number of bottles that Larissa would need to sell to make a profit of $20,000 for the year. (3 marks) The local market coordinator has offered Larissa a choice to continue paying the fixed rental on the market space or pay 10% of the market contribution margin as the rental fee. The current fixed rent for the year is $2,500 (included in annual fixed administration costs above). Larissa estimates that the annual sales at the markets would account for 60% of her total annual sales. Given the current level of sales, should Larissa take the option of the fixed rent or should Larissa switch to variable rent based on contribution margin? Explain with workings. (8 marks)
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