QUESTION 4 (20)

Exxarro Llimited is considering pricing and costing for the year ahead. The following data based on expected production and sales of 15 000 units are provided for analysis: Variable manufacturing cost R1 185 000 Fixed manufacturing cost R510 000 Sales commission R5 per unit sold Fixed administration cost R130 000 Sales R210 per unit Study the information provided above and answer the following questions independently:

4.1 Calculate the break-even sales value. (5)

4.2 Calculate the sales volume required to achieve a profit of R 800 000. (5)

4.3 Suppose Exxaro Limited is considering a decrease of 10% per unit in the selling price of the product with the expectation that it would increase sales volume by 10%. Is this a good idea? Motivate your answer with relevant calculations. (10)