QUESTION 3 (20 Marks)

3.1 REQUIRED Study the information provided below and answer the following questions:

3.1.1 If the sales managers proposal is rejected, calculate the total revenues at break-even by using the contribution margin ratio. (4 marks) 3.1.2 Calculate the additional expenditure that the company can afford to spend on advertising, in keeping with the sales managers proposal. (4 marks) 3.1.3 Calculate the break-even quantity if the sales managers proposal is accepted (using the proposed new selling price and the increase in the advertising outlay). (4 marks)

INFORMATION

Denel Enterprises manufactures a product that sells for R180 each. The company presently produces and sells 120 000 units per year. Unit variable manufacturing expenses and variable selling expenses are R90 and 10% of the sales price respectively. Fixed costs are R4 536 000 for manufacturing overheads and R1 944 000 for selling and administrative activities. The sales manager has proposed that the price be increased to R216 per unit. To maintain the present sales volume, advertising must be increased. The companys profit objective is 10% of sales.

3.2 REQUIRED Study the information given below and answer the following questions independently:

3.2.1 If Dundee Limited wants to achieve an operating profit of R972 000, calculate the target sales value without using the contribution margin ratio. (4 marks) 3.2.2 Based on the expected sales volume, what sales price per unit will allow the company to break even? (4 marks)

INFORMATION Dundee Limited is analysing whether its new product will be profitable. The following data is based on expected sales of 40 000 units: Variable manufacturing costs R3 840 000 Fixed manufacturing costs R1 200 000 Fixed marketing and administrative costs R420 000 The expected selling price is R150 per unit.