QUESTION $2$

$[30$ MARKS$]$

You are a financial consultant for a small manufacturing company specialising in electronics.

The company is contemplating launching a new product line of smartwatches to expand its

market presence and revenue streams. Your task is to conduct a thorough cost$-$volume$-$profit

$($CVP$)$ analysis to evaluate the financial viability of this new venture.

Cost breakdown for smartwatch production:

$$ Variable costs per unit:

o Cost of raw materials and components: R$150$ per unit

o Direct labour for assembly: R$50$ per unit

o Packaging costs: R$20$ per unit

$$ Fixed costs for the production of smartwatches:

o Rent for manufacturing facility: R$10,000$ per month

o Salaries of production staff: R$15,000$ per month

o Equipment depreciation: R$5,000$ per month

$$ Selling price per smartwatch: Based on market research and competitive analysis, the

selling price per smartwatch is set at R$400$ per unit.

Required:

A$.$ Calculate the contribution margin per unit for the smartwatches. $(5$ marks$)$

B$.$ Determine the breakeven point in units and sales revenue for the smartwatch product

line. $(9$ marks$)$

C$.$ How does conducting sensitivity analysis by varying key parameters such as selling

price, variable costs, and sales volume assist in assessing their impact on the

breakeven point and overall profitability in business decision$-$making? $(7$ marks$)$

D$.$ Provide recommendations to the company based on the CVP analysis

and sensitivity analysis results regarding the feasibility of launching

the smartwatch product line. $(9$ marks$)$