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Using the information in Table MA.4, advise the marketing director on whether it would be more beneficial to make fruit and nut bars rather than

Using the information in Table MA.4, advise the marketing director on whether it would be more beneficial to make fruit and nut bars rather than buy them in from another company for £1.70 per bar. What other considerations need to be taken into account?

Table MA.1 Volume chocolate bars
Selling price per bar £
Cocoa
grams per
bar
Sugar
grams per
bar
Milk
millilitres
per bar
Dark
80,000
2.00
170
30
0
Milk
140,000
1.80
130
40
30
White
60,000
2.00
0
70
130
Raw material costs
£4 per kg
£2 per kg
£1 per litre


Table MA.2
Indirect costs*
£k
Rent
18.2
Utilities
13.8
Factory administration
12.7
Marketing and sales
47.4
Administrative salaries
38.5

factory indirect costs are currently allocated on a blanket rate.

Packaging is estimated at £200 per 1,000 bars.

Direct labour costs are expected to be £10 per hour.

Table MA.3 Sales director’s volume and price assumptions
Increase price
Decrease volume
Dark chocolate bars
10%
10%
Milk chocolate bars
5%
5%
White chocolate bars
No change
No change
Table MA.4 Fruit and nut: raw material costs
Per bar
Quantity
Cost
Cocoa, sugar, and milk
Assume 50% of milk bar

Fruit
50g per bar
£4 per kg
Nut
50g per bar
£8 per kg
Direct labour, packaging,
and factory overhead
Cost per bar: use same assumptions
as other chocolate bars

Sales revenue budget




Dark
milk
white
total

Volume
80000
140000
60000
280000

selling price per bar
2
1,8
2


total sales revenue
160000
252000
120000
532000







Raw materials





dark
milk
white
total

volume
80000
140000
60000
280000

cocoa per bar
0,17
0,13
0
0,3

total cocoa used
13600
18200
0
31800

cost per kg
4
4
4
4

total cocoa cost
54400
72800
0
127200







volume
80000
140000
60000
280000

sugar per bar
0,03
0,04
0,07
0,14

total sugar used
2400
5600
4200
12200

cost per kg
2
2
2
2

total sugar cost
4800
11200
8400
24400







volume
80000
140000
60000
280000

milk per bar
0
0,03
0,13
0,16

total milk used
0
4200
7800
12000

cost per kg
1
1
1
1

total milk cost
0
4200
7800
12000







Packaging





dark
milk
white
total

volume per thousand
80
140
60
280

cost
200
200
200
200

total packaging cost
16000
28000
12000
56000







Direct labour





dark
milk
white
total

volume
80000
140000
60000
280000

hours (volume/20)
4000
7000
3000
14000

per hour cost
10
10
10
10

total direct labourcost
40000
70000
30000
140000







Income statement



sales revenue

532000



direct materials





cocoa
127200




sugar
24400




milk
12000
163600



direct labour

140000



ackaging

56000



indirect costs





rent
18200




utilities
13800




factry administration
12700




marketing and sales
47400




administrative salaries
38500
130600



Net income

41800



Management can assure themselves about the estimate by considering the market price and market survey.


















b)
Analysis



dark
milk
white
total

volume
80000
140000
60000
280000

weight
0,285714286
0,5
0,214285714


sales revenue
160000
252000
120000
532000

Direct materials:





cocoa
54400
72800
0
127200

sugar
4800
11200
8400
24400

milk
0
4200
7800
12000

packaging
16000
28000
12000
56000

indirect costs
37314,28571
65300
27985,71429
130600

total costs
112514,2857
181500
56185,71429
350200

profit
47485,71429
70500
63814,28571
181800

net profit margin
0,296785714
0,279761905
0,531785714
0,341729323





Current profitability:




dark
milk
white
sales volume
80000
140000
600002
selling price/unit
2
1,8
2




Raw materials/unit



cocoa 4/1000*170,*130,*0
0,68
0,52
0
sugar 2/1000*30,*40,*70
0,06
0,08
2,8
milk 0,1/1000*30,*130
0
0,03
0,13
R/Mat.Total
0,74
0,63
2,93
direct labour 1/20*€10
0,5
0,5
0,5
total direct costs
1,24
1,13
3,43
Contribution/unit
0,76
0,67
-1,43
total contribution sales*contn/unit
60800
93800
-85800

68800


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