Question $6$

Sunset Bass Ltd$.$ specializes in selling brass saxophones. Established in $1990,$ the company has a strong presence in the global market, catering to musicians of various genres, including jazz, classical, and contemporary music. Sunset Bass imports saxophones from reputable manufacturers worldwide and distributes them to dealers internationally.

Sunset Bass currently offers two saxophone models: the Harmony and the Melody. The Harmony is designed for beginner and intermediate players, while the Melody is a premium model preferred by professional saxophonists.

The expected selling prices, costs per unit and sales volume for next year are:

Harmony Melody

Selling price to dealers $7001,500$

Cost of saxophones $($from manufacturer$)300700$

Packing & distribution costs $7060$

Sales volume $800400$

Other fixed costs for the upcoming year are as follows:

General Administration $70,000$

Finance $100,000$

Managing Directors salary $75,000$

Sales staff salary $45,000$

Advertising costs $110,000$

Required:

a$)$ Calculate the contribution from each product, the total contribution, and the total expected profit for next year.

$(6$ marks$)$

This question continues the next page.

b$)$ If the selling price of the Melody saxophone is increased by $10\%,$ its sales volume is expected to decrease by $10\%.$ In addition, the sales volume of the Harmony is projected to increase by $5\%$ as some buyers are expected to switch to the Harmony saxophone.

Calculate the likely impact of this proposal on profits. $(12$ marks$)$

The Marketing Manager has proposed that Sunset Bass Ltd$.$ expand its business by offering saxophone repair services in addition to selling saxophones to dealers. The Marketing Manager provided the following estimates for the first year of this new service:

Harmony Melody

Price for repair services $100200$

Cost of repair materials $3050$

Sales Volume $24095$

The additional fixed costs for the repair services are estimated at $25,000.$

The existing sales staff will continue to sell saxophones to dealers and are not impacted with the new repair services.

Required:

c$)$ Calculate the additional profit which this proposal will generate.

$(8$ marks$)$

d$)$ Consider both the positive and negative effects of this proposal and briefly comment on the non$-$financial effects of proceeding with this proposal.