Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are the chief financial analyst of Hercules Manufacturing Limited. The company manufactures bowls and has been planning to aggressively expand its sales into the

You are the chief financial analyst of Hercules Manufacturing Limited. The company manufactures bowls and has been planning to aggressively expand its sales into the Middle Eastern markets. You have been tasked to analyse its reports using CVP and provide explanations to the Director, Tierra Muller.
The operating statement relating to the month ended September 30, 2019 of Hercules Manufacturing Limited is as follows:
$000 $000
Sales (22,000 units) 3,300
Direct materials 726
Direct labour 374
Production overheads 798
Total 1,898
Gross profit 1,402
Selling overheads 1,042
Net profit 360
The variable production overheads were $9 per unit while the variable selling overheads were $11 per unit.
Required:
a) Calculate the contribution margin per unit. (1.5 marks)
b) Calculate the breakeven sales in units, and provide one explanation on the usefulness of breakeven sales information. (2.5 marks)
c) Calculate the margin of safety in dollars and provide one explanation on the usefulness of margin of safety information. (2.5 marks)
d) The company has a capacity of 30,000 units per year. Management is not happy with the financial performance for the last year, and one course of action for the coming year were proposed in the recent management meeting:
The sales manager believed that unit volume would increase by 30% with the incurrence of $200,000 on advertising.
Prepare a CVP income statement for the alternative (showing columns for totals only). Would you recommend this alternative and why? (3 marks)
e) The company has a target net income of $750,000. Assume additional advertising costs will be incurred, what is the required sales in dollars for the company to meet its target? (1.5 marks)
SHOW YOUR WORKING
pls mention all step clearly and formula as well
there are answer available but did not clear steps so pls step all in clear way
and mention part as well
TIA

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Payroll Accounting 2021

Authors: Bernard J. Bieg, Judith A. Toland

31st Edition

0357358287, 9780357358283

More Books

Students also viewed these Accounting questions

Question

Why are published cases predominantly from appellate courts?

Answered: 1 week ago