Question 3.

Security Ltd use to make and sell only one type of alarm system but in order to survive in a competitive market the company has recently expanded its line and added another two products. Currently the company has three products, the "Home" which sells for $200, the "Corporate" which sells for $150 and the "Mega" which sells for $180. Given the company has only just branched out with multiple products it requires the assistance of the Management Accountant to perform some CVP analysis.

Additional Information:

	Home	Corporate	Mega
Sales (units)	30,000	45,000	37,500
Direct Labour	$10.00	$22.00	$41.00
Variable Selling Expenses	$15.00	$13.00	$10.00
Electrical components	$5.00	$5.00	$5.00

Based on the increase in demand, forecasted sales volume for the "Mega" is expected to double whilst the sales volume of the other two units will remain the same. The company recently received a letter from their suppliers informing them that the direct materials which are used for making the "Home" will increase by $10 per unit. The management accountant has determined that the direct labour involved with the Corporate will reduce to $18 as most of the labour that use to go into making this product has now been automated. The variable selling of the Mega is said to increase by $8. Fixed cost for the company are said to be $248,800

Answers to all questions are required: (where necessary round off answer to 2 decimal places). In answering the below questions please take into consideration the information provided above. All workings must be shown.

a) Calculate the sales mix for the three products

b) Calculate the weighted average contribution margin (WACM) for the company. c) Calculate the number of units for each product line which need to be sold in order for the company to break even.

d) Calculate for the company the total units needed to be sold to meet target profit of $600,000.

e) Security Ltd is currently renting its business space but is considering moving to a bigger site. If they move to a bigger site the rental will double in price. Advise the accountant whether it is a good idea to move or not?

(1.5 + 7.5 + 2 + 2 + 3 = 16 marks)