QUESTION 4 (9 marks)

Nirvana Ltd sells one product, X100. The following information is available:

Sales price per unit

R

145

Direct material cost per unit

R

25

Direct labour cost per unit

R

20

Variable manufacturing overhead cost per unit

R

7

Fixed manufacturing overheads (total)

R

650,000

Variable selling and administrative cost per unit

R

10

Fixed selling and administrative costs (total)

R

245,000

REQUIRED:

The sales director has approached you with the following question:

We are considering adding another product to our range (Y500). We aim to sell two X100s for every three Y500s sold.

Y500 will sell at R65, with a contribution margin of 60%. Fixed costs are expected to increase by 20% if Y500 is added to production.

Can you tell me how many units of X100 and Y500 we need to sell to make a profit before tax of R3 000 000?