QUESTION 2 (36 marks) Fast Furnishers Ltd makes a high-quality wooden birdhouse that sells for N$20 per unit Variable costs are N$8 per unit, and fixed costs total N$180 000 per year. The company pays tax at 35% Required: 2.1 What is the break-even point in sales dollars? 2.2 2.3 How much sales should the company achieve if the aim is to make an after tax profit of N$52 000. Due to an increase in demand, the company estimates that sales will increase by N$75 000 during the next year. By how much should net income before tax increase (or net loss decrease) assuming that fixed costs do not change? (3) 2.4 Assume that the operating results for last year were. Sales Less variable expenses Contribution margin Less fixed expenses Net income N$400 000 160 000 240 000 180 000 60 000 0) Compute the operating leverage factor at the current level of sales. (i) Management expects sales to increase by 20% next year. By what percentage should net income increase? 2.5 Refer to the original data. Assume that the company sold 18 000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a N$30 000 increase in advertising, would cause annual sales in units to increase by one-third. Prepare two contribution comprehensive income statements, one showing the results of last year's operations and one showing the results of operations if these changes are made. Would you recommend that the company does as the sales manager suggests? (12) 26 Refer to the original data. The company has another option to manufactures and sells, both wooden birdhouse and wooden mouse-house. The company can sell mouse-house at N$25 each and variable cost would be N$17.50 per unit. The sales mix of birdhouse to mouse-house would be in the ratio 4:6 2.6.1 How many units of each birdhouse and mouse-house are expected to be sold at the break-even point? Calculate the break-even point in N$ for each product individually. 2.6.2