The following was extracted from the standard cost card of Kafue Cement plc.

Selling price 100kg pocket of cement K360 Direct material cost per 100kg pocket of cement K50 Direct labour cost per 100kg pocket of cement K50 Variable production overhead per 100kg pocket of cement K29

Other relevant cost information extracted from the budgets:

Fixed production costs

Fixed selling and distribution costs Sales commission

Sales

REQUIRED:

K9,750,000 K3,456,000

5% of selling price

90,000 100kg pockets of cement.

1. Calculate the breakeven point both in sales volumes (number of pockets) and sales value. (2 marks)

2. Calculatethemarginofsafetybothinpercentageandinvolume.(2marks)

3. SupposethesellingpriceperpocketofcementwastobeincreasedtoK375

and the sales commission increased to 8% and a further K150,000 on advertising.

Calculate the revised breakeven point sales volume based on suggestion in (3) above and comment accordingly. (6marks)

(b)

The following information applies to a company operating in Chilanga. It is the operational results for the year just ended, 2019.

The company, which manufactures a single product coded zeron , achieved a sales value of K8.000.000 for the period under consideration. A unit of zeron was being sold at K20. During the period under review, the company operated at 80% capacity. Suggestions are being made to increase the operating capacity. Details of the cost structure are hereby given:

2

Direct material

Direct labour

Variable production overhead

Variable selling overhead

Variable distribution overhead

Fixed production overhead

Fixed selling overhead

Fixed distribution overhead

Fixed administration overhead

Further , sales agents are paid a commission of 5% on sales value for selling zeron.

Required

(a) Compute the companys breakeven point in sales value (2 marks)

(b) Prepare income statements, given three scenarios depicted hereunder:

Scenario 1

At the present level of sales

Scenario 2

If the unit selling price is reduced by 5% which should increase sales volume by 12.5%

Scenario 3

If the unit selling price is reduced by 10% which should increase sales volume by 25%

Comment on scenario three above which will stretch the capacity limit