Question
Year Net cash flows 0 (140,000) 1 23,240 2 45,780 3 54,320 4 54,320 5 54,3203 Budget data for the first year of the re-cover
Year Net cash flows 0 (140,000) 1 23,240 2 45,780 3 54,320 4 54,320 5 54,3203 Budget data for the first year of the re-cover service are as follows: Large Medium Small Sales (units) 2,250 1,450 2,400 Selling price per unit 115 90 58 Direct labour cost per unit 12.60 8.40 6.30 Fabric cost per unit 44.80 32.20 21 Contribution per unit 57.60 49.40 30.70 Specific Fixed Costs: Factory power costs: 84,000 per annum Lease of equipment for re-cover service: 70,000 per annum The expected time to produce each size of cover is as follows: Re-cover Service Large Medium Small Time to make each cover 0.6 hour 0.4 hour 0.25 hours The production director has now informed the board that the supply of skilled labour for year 1 will be restricted to a maximum of 2,500 hours. The company's cost of capital is 8% per annum. Question A (i) Calculate the budgeted profit after specific fixed costs, for year 1 of the re-cover operation, assuming demand can be met in full. (5 marks) (ii) Calculate the sales mix that will maximise budgeted profit for year 1 of the re-cover operation based on the limited availability of labour. (10 marks) (iii) Suggest two actions that the company could take to overcome the shortage of labour. (5 marks) (iv) Calculate the payback period for the re-cover project. (5 marks) (v) Calculate the net present value for the re-cover projec
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started