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Question 2 ACE Hardware Ltd. is a hardware firm offering a range of products and services related to home furniture. The total fixed costs related
Question 2 ACE Hardware Ltd. is a hardware firm offering a range of products and services related to home furniture. The total fixed costs related to sales and production of the firm for the next quarter are projected to be 60,000. The information relating to the three main fixture and fitting packages the firm offers is as follows: Labour requirements: ACE Hardware has 50 full time employees who are paid a fixed salary of 2,000 per month. These full-time employees get an additional 50% of the labour cost charged to customers for every installation job they do. The firm has outsourced its luxury furniture design to a local design agency, and this costs 500 per design plan. Machinery requirements: For the luxury package, the furniture will need to be customised using a specialised machine for two weeks. This machine is currently being hired out to another business at a weekly rental of 300 on a week-by-week contract. PTO Page 4 of 6 Other costs: ACE Hardware spends 700 per quarter on market research to keep up to date with the current trend in the industry. The firm also spends 3,000 per year on marketing and promotion for brand reputation management. a. Identify all relevant costs related to the basic package and calculate the break-even point if the firm will only sell the basic package product during the quarter. (6 marks) b. Identify all relevant costs related to the luxury package and calculate the break-even point if the company will only sell the luxury package during the quarter. (10 marks) c. Using the contribution margin format, calculate ACE Hardware's total projected profit for the quarter for all three packages. (15 marks) d. If the firm will only sell the premium package product during the next quarter. calculate the number of units to be sold to meet a target profit of 36,000. ( 3 marks) e. Discuss why it is important to have a diversified product portfolio using examples from your previous calculations. (6 marks) (Total 40 marks) PTO Page 5 of 6
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