Question 3 - Continued (b) Apple Ltd is going to launch a new product. The following information is the estimates for the forthcoming financial year. Sales Direct materials Direct labour Factory overheads - variable - fixed Administrative and selling costs fixed $ 700,000 140,000 105,000 35,000 80,000 160,000 The planned production capacity is 70,000 units (50% of total production capacity). It is assumed that the company sells all the products. Required: (i) Calculate the breakeven point in sales dollars. (2 marks) (ii) Calculate the margin of safety in units at the planned level of production. (2 marks) (iii) Determine the net profit under the planned level of production capacity. (2 marks) (iv) The marketing manager has suggested that an increase in advertising expense of $399,700 and a sales commission of 10% of selling price would bring sales volume up to 100% of the production capacity. Calculate the new selling price per unit if total profit is to remain the same. (4 marks) (v) The CEO wants to find out that the estimated selling price for the product if the company can sell 100% of the production capacity by using the absorption costing approach to cost-plus price. If the investment of $640,000 is needed for this project and the company's required rate of return is 15% on all investment. Calculate the markup percentage required to achieve the desired ROI and the new selling price per unit. (6 marks) [Total for Question 3: 25 marks] Question 3 - Continued (b) Apple Ltd is going to launch a new product. The following information is the estimates for the forthcoming financial year. Sales Direct materials Direct labour Factory overheads - variable - fixed Administrative and selling costs fixed $ 700,000 140,000 105,000 35,000 80,000 160,000 The planned production capacity is 70,000 units (50% of total production capacity). It is assumed that the company sells all the products. Required: (i) Calculate the breakeven point in sales dollars. (2 marks) (ii) Calculate the margin of safety in units at the planned level of production. (2 marks) (iii) Determine the net profit under the planned level of production capacity. (2 marks) (iv) The marketing manager has suggested that an increase in advertising expense of $399,700 and a sales commission of 10% of selling price would bring sales volume up to 100% of the production capacity. Calculate the new selling price per unit if total profit is to remain the same. (4 marks) (v) The CEO wants to find out that the estimated selling price for the product if the company can sell 100% of the production capacity by using the absorption costing approach to cost-plus price. If the investment of $640,000 is needed for this project and the company's required rate of return is 15% on all investment. Calculate the markup percentage required to achieve the desired ROI and the new selling price per unit. (6 marks) [Total for Question 3: 25 marks]
