Question 5

Green Ltd manufactures and sells a single product. The initial budget for the forthcoming period is:

$

Material 20,000

Labour(1/3fixed)18,000

Variableproductionoverheads 8,000

Fixedproductionoverheads 8,000

Sales overheads(50%fixed) 4,000

58,000

The standard selling price is $90 per unit and tax rate is at 28%. Sales for the period are budgeted to be 800 units. The maximum production capacity for the period is 1,500 units.

Required: with solution method:

(a)Calculate:

othe profit after tax at budgeted sales level;and

othe amount of sales unit required in order to earn a profit after tax of $18,000 for the period.

(b)Compute:

oif Green Ltd reduced the selling price to $80, which will enable 1,000 units to be sold, how much is the profit aftertax?

othe amount of sales unit required in order to earn a profit after tax of $18,000 for the period.

1. (c)Advise the management as to the best courseofaction.