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QUESTION ONE A company manufactures a single product which has the following cost structure based on a production budget of 10,000 units. Material 4kg@ZMW3/kg ZMW
QUESTION ONE A company manufactures a single product which has the following cost structure based on a production budget of 10,000 units. Material 4kg@ZMW3/kg ZMW 12 Direct labour 5 hours@ZMW7/Hr ZMW 35 Variable production overheads are recovered at a rate of ZMW8per direct labour hour. Other costs incurred by the company are: ZMW Factory fixed overheads Selling and distribution overheads Fixed administration overheads 120,000 160,000 80,000 The selling and distribution overheads include a variable element due to a Bistribution cost of ZMW2 per unit. The fixed selling price of each unit is ZMW129 and tax rate is 25% equired: i) Calculate how many units have to be sold for the company to break even. (5 Marks) ii) Calculate the sales revenue which would give before tax profit of ZMW40,000. (5 Marks) iii) Re-calculate the before tax profit in (ii) if fixed factory and administration overheads dropped by 50%. (5 Marks) iv) Explain the effects of operating leverages on the company's Production Volume and Breakeven Point
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