QUESTION 42 (40 Marks) Part 1 (20 Marks) Max (Pty) Ltd produced the following budget for April 2020: Sales Cost of sales Opening inventory Manufacturing costs Material Direct labour Variable overhead Fixed overhead Closing inventory Gross profit Operating expenses Administration expenses Selling expenses Profit for the month Units 120000 22000 115000 17000 120000 R 2880000 2364000 433400 460000 1380000 287500 138000 2698900 334900 516000 202000 312000 2000 Material and half of the labour are variable. Administration expenses are fixed and the variable portion of selling expenses is 10% of the selling price per unit. The company received an order for 25000 units from a new customer. This customer is operating in Mpumalanga, an area where Max's products are not yet sold. Max dearly want to get into the market and is considering a selling price to charge for this order. Production capacity is underutilised and the marketing director has suggested that a 10% mark-up on cost should be the only profit the company takes. He also suggests that only the incremental manufacturing costs be used. No selling costs will be incurred on the order. The only additional cost is special packaging costing R1 per unit sold. The company approached you to help them with the pricing of the order as they want to ensure that they enter that market. REQUIRED 1. Calculate the budgeted variable cost per unit. (5) 2. Calculate the total fixed cost for April. (3) 3. Calculate the budgeted breakeven point for the company. (2) 4. What is the significance of breakeven point to a company? (3) 4. Suggest a selling price that will ensure a 10% mark-up on incremental costs. (4) 5. Discuss the impact of offering the products at a cheaper price to the client in Mpumalanga compared to the usual price of the products. List any qualitative measures you would consider