QUESTION 3 [25 Marks] INFORMATION An entrepreneur recently opened a filling station. Diesel is sold at R15 per liter and the variable costs total R12 per liter. The fixed costs per month are R270 000. After six months of trading, the sales achieved were 1080 000 liters and the sales volume has remained at the same level each month. In an attempt to improve performance, the entrepreneur is considering the following proposals: REQUIRED Study the information provided below and answer each of the following questions independently: 3.1. Calculate the operating profit/loss at the end of the first six months of operations. (5 marks) 3.2. Calculate the break-even value per month during the first six months of operations. (5 marks) 3.3. Calculate the total Operating profit/loss per month, if Proposal 1 is implemented. (5 marks) 3.4. How many liters of petrol need to be sold to achieve an operating profit of R301 625 each month, if Proposal 2 is accepted? (5 marks) 3.5. Calculate the reduction in monthly fixed costs that is necessary to yield a profit of R300000, if Proposal 3 is accepted. (5 marks
Proposal 1 Customers wil be allowed to purchase diasel on credit. It is estimated that 50% of the average monthly sales (in litres) will be to customers who would take advantage of this opportunity. Sales to these customers should increase by 20%, as they are expected to buy exclusively from this filling station. Salas volumes to customers who do not take advantage of the credit policy are expected to remain unchanged. Additional costs arising from this proposal are expected to be as follows: - Bad debts of 1% of the sales in respect of customers who use the credit faclity. - Fixed administrative costs of R18 000 per month. Proposal 2 The entrepreneur wants an operating profit of R301 625 per month. To achieve this the following changes are suggested. - Selling price is reduced by RD. 20 per litre. - A sales commission of R0.50 per litre sold will be granted to the fual attendants. - An additional R5 875 per month will be spent on advartising. \begin{tabular}{l} Proposal 3 \\ The possibility of only operating from 06:00 to 20:00 is being considered. This earlier closing time is \\ expected to rasult in a loss in salas of 25000 litres on average per month. It is hoped that the saving \\ in fixed costs resulting from the reduction in operating hours will enable the entreprenaur to achieve \\ an average monthly profit of at least R300 000 . \\ \hline \end{tabular} REQUIRED Study the information provided below and answer each of the following questions independently: 3.1. Calculate the operating profitioss at the end of the first six months of operations. (5 marks) 3.2. Calculate the break-even value per month during the first six months of operations. (5 marks) 3.3. Calculate the total Operating profitloss per month, if Proposal 1 is implemented. (5 marks) 3.4. How many liters of petrol need to be sold to achieve an operating profit of R301 625 each month, if Proposal 2 is accepted? (5 marks) 3.5. Calculate the reduction in monthly fixed costs that is necessary to yiald a profit of R300c00, if Proposal 3 is accepted. (5 marks) Proposal 1 Customers wil be allowed to purchase diasel on credit. It is estimated that 50% of the average monthly sales (in litres) will be to customers who would take advantage of this opportunity. Sales to these customers should increase by 20%, as they are expected to buy exclusively from this filling station. Salas volumes to customers who do not take advantage of the credit policy are expected to remain unchanged. Additional costs arising from this proposal are expected to be as follows: - Bad debts of 1% of the sales in respect of customers who use the credit faclity. - Fixed administrative costs of R18 000 per month. Proposal 2 The entrepreneur wants an operating profit of R301 625 per month. To achieve this the following changes are suggested. - Selling price is reduced by RD. 20 per litre. - A sales commission of R0.50 per litre sold will be granted to the fual attendants. - An additional R5 875 per month will be spent on advartising. \begin{tabular}{l} Proposal 3 \\ The possibility of only operating from 06:00 to 20:00 is being considered. This earlier closing time is \\ expected to rasult in a loss in salas of 25000 litres on average per month. It is hoped that the saving \\ in fixed costs resulting from the reduction in operating hours will enable the entreprenaur to achieve \\ an average monthly profit of at least R300 000 . \\ \hline \end{tabular} REQUIRED Study the information provided below and answer each of the following questions independently: 3.1. Calculate the operating profitioss at the end of the first six months of operations. (5 marks) 3.2. Calculate the break-even value per month during the first six months of operations. (5 marks) 3.3. Calculate the total Operating profitloss per month, if Proposal 1 is implemented. (5 marks) 3.4. How many liters of petrol need to be sold to achieve an operating profit of R301 625 each month, if Proposal 2 is accepted? (5 marks) 3.5. Calculate the reduction in monthly fixed costs that is necessary to yiald a profit of R300c00, if Proposal 3 is accepted
