Trumpet Ltd is considering producing a new product to market overseas. It expects that it will be able to sell the product for $400 per unit. The costs involved with the product are variable costs of $200 per unit and fixed costs of $1,500,000.

The managing director wants you to provide the following information:

1. The break-even point in units and dollars

2. The profit/loss on 30,000 units

3. The new break-even figures if fixed costs increased to $3,500,000

You have been provided with the following information on the expenses of Trumpet Ltd for the month of May 2020:

	ACTUAL 100,000 units	BUDGET 80,000 units
Materials	211,200	160,000
Direct labour	158,000	128,000
Maintenance	20,800	16,000
Glue, screws, nails	10,000	8,000
Supplies	38,000	32,000
Electricity	31,000	24,000
Rent	24,000	24,000
Salaries	9,000	9,000
TOTAL	$502,000	$401,000

You are required to:

(i) Prepare the performance report for the month of May 2020 using the flexible budget approach

(ii) Where there is an unfavourable variance give possible reasons and corrective action

Task 3 (PC: 3.1, 3.2, 3.3, 3.4, 4.1, 4.2, 4.3)

During the year 2020, Trumpet Ltd sold two products. The budgeted and actual details are as follows:

Details	Actual 2020	Budget 2020
Sales of product A	1,400 units at $60 each	1,400 units at $66 each
Product cost of A	1,400 units at $36 each	1,400 units at $40 each
Sales of product B	400 units at $160 each	500 units at $150 each
Product cost of B	400 units at $80 each	500 units at $84 each

You are required to:

(i) Prepare a profit & loss statement showing budget, actual and variance figures in order to do a sales and gross profit analysis

(ii) Calculate the sales mix or volume variance

(iii) Calculate the price variance

(iv) Calculate the cost variance

(v) Reconcile the total gross profit variance

(vi) Give a summary of the above results, reasons for unfavourable variances and recommendations for correction.

Task 4 (PC: 4.1, 4.2, 4.3)

Trumpet Ltd is considering expanding its operations in Kenya. The directors have identified two projects among the various options available to them, Project X and Project Y. The details are as follows:

	Project X	Project Y
Initial investment Life Profit after tax Net cash inflows	$112,500 4 years $18,000 $37,500	$130,000 5 years $20,000 $40,000

The directors want you to state if the projects are acceptable and given a choice which one you would select giving working and reasons. Furthermore, because the directors want to be sure they select the correct option, they want you to evaluate the above projects using the following four methods:

1. Accounting rate of return - The required rate is 15%
2. Payback period - A project is required to pay for itself within 3.25 years
3. NPV assuming an interest rate/cost of capital of 14%
4. Profitability Index