The Sales Manager of Letlalo Products (Pty) Ltd asked you to assist him in preparing amotivation to introduce a new leather handbag into the range of products that the company offers. The company policies are as follows:

1. The selling price is calculated at a mark-up of 50% on variable cost.

2. New products introduced must contribute 15% net profit after tax.

He supplied you with the following information:

Cost per unit

Other information

Leather

R246.00

Silk material

R350.00

Labour

3 hours @ R185.00 per hour

Overheads

R155.00 per labour hour

Incremental fixed cost

R625,000.00

Tax rate

28%

The sales manager estimated the market size to be 2,000 handbags for the year.

Required:

1. Calculate the break-even units of handbags to be sold. (10Marks)

2. Calculate and comment if the handbag will comply with the company's policy regarding the introduction of new products. (Show all your calculations as method marks will be awarded. (10Marks)