QUESTION 2 (Adapted from Rhodes University) This question consists of THREE related parts PARTA 25 Marks 145 minutes) 229 Hawk Agricultural Enterprises (Pty) Ltd manufactures agricultural pumps. It recently introduced a new type of energy-efficient pump, which has the following unit cost structure NS Selling price Variable costs Direct materials and components Direct labour Variable manufacturing overheads Variable selling expenses Contribution margin Fixed costs Fixed manufacturing overheads Fixed selling expenses Profit NS 275 150 135 70 48 17 Unit 140 contention per 25 125 90 85 80 V CPU 35 The fixed overheads included in the unit cost of a pump are directly related to the manufacture and sale of this pump. The allocation of the overheads is based on the current sales level of 1200 pumps per year REQUIRED 2.1. Calculate the following: a) The break-even point in units and value b) The margin of safety percentage SUB-TOTAL (PART A) PART B Marks bied: 6 4 10 The directors are considering a new selling price of NS268 per unit. The change in selling price will not result in any changes to fixed costs. The directors wish to maintain the existing profits but are unsure of how many additional units they will need to sell. REQUIRED 2.2. Calculate how many additional units the organisation will have to sell in order to maintain the existing profits if the revised selling price is implemented. SUB-TOTAL (PART B) PART C Marks 4 4 As an alternative to reducing the selling price to N$268 per unit, the directors are investigating whether or not to decrease the selling price to N$260 per pump, anticipating that the sales volume will increase to 1500 units. It is estimated that fixed manufacturing overhead costs will increase by 10% as a result. REQUIRED 2.3. Calculate the following: a) Whether the annual net profit will increase, if the estimates are correct b) What the new break-even point in units. c) What the new margin of safety percentage will be Marks 629