QUESTION FOUR [25] Firiya Limited produces and sells ladies dresses for R600 each. Each dress is manufactured using 1 metre of fabric and the time required to produce each dress is 3 hours. Fabric costs R200 per metre and the labour cost is R40 per hour. Variable manufacturing overheads amount to R40 per dress. Salespersons receive a commission of R60 per dress. Fixed manufacturing costs amount to R2 400 000 per year. Annual fixed selling and administrative costs total R606 000. Firiya Limited expects to produce and sell 18 000 dresses for the year.

Required:

4.1 Calculate the total Contribution margin and Operating profit/loss. (5)

4.2 How many bags must be sold in order to break even? (5)

4.3 Calculate the margin of safety in value. (5)

4.4 Calculate the number of dresses that must be sold in order to earn an operating profit of R540 000. (5)

4.5 The management of Barbados Limited has a strategy to reduce fixed costs by 10% and can thereby drop the selling price by R30 unit. If the sales volume also increases by 4 500 units, calculate the new total Contribution margin and Operating profit/loss (5)