Question
Question Three A Chinese manufacturing company called DryPad Ltd has been trading for 1 year with an initial capital investment of RMB 5,000,000 (RMB stands
Question Three
A Chinese manufacturing company called DryPad Ltd has been trading for 1 year with an initial capital investment of RMB 5,000,000("RMB" stands for renminbi and is theChinese currency). It produces a magnetic keypad for Android tablet computers (the product) with one in each box (a unit) for direct retail distribution. The selling price of each unit is RMB 65.00.
The Director has requested your assistance in reviewing the financial situation and has provided you with the following information. This relates to monthly costs in which the company sells an average of 10,000 units.
Cost
Plastic components Electrical components Direct labour
Cables
Packaging
Electricity
Admin costs Depreciation
Salaries
Insurance
Salesman commission
RMB
25,000
70,000 100,000 30,000 14,000 85,000 25,000 50,000 50,000 5,000 60,000
Electricity is semi-variable, being 35% fixed. You are to presume that the products are produced and sold evenly throughout the year.
Required:
- a)Identify and categorise the costs into three categories, variable, semi variable and fixed.(5 marks)
- b)Calculate total fixed costs and variable costs per unit.(6 marks)
- c)Calculate the break-even position (in units) of the company.(2 marks)
- d)Calculate the margin of safety in turnover terms.(1 mark)
- e)Determine the profit at the current demand level.(1 mark)
- f)Accurately draw a graph showing the following:
- Fixed costs, total variable cost, total cost, total revenue, break-even point and margin of safety.
- Make sure you label your graph appropriately.(6 marks)
- g)The director has decided that it is important to him to achieve a ROCE of 10%. How many units in total would he need to sell in order to achieve this and is this level currently being met?(4 marks)
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