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You recently started a company Fruity Juices Ltd', which sells high quality fresh juices and smoothies to students and staff on the university campus. You
You recently started a company "Fruity Juices Ltd', which sells high quality fresh juices and smoothies to students and staff on the university campus. You have prepared the financial statements for the year ended December 2014 and are considering a number of options, outlined below, to improv e performance for the coming year. Income Statement of Fruity Juices Ltd for the year ended 31 December 2014 s Revenue (20,000 juices at SAR20 per drink osts of Sales Direet Labour Variable Fixed production overhead overhead lling and administration overhead ot(SAR Fixed selling and 50,000 90.000 Prefit Option I Reduce the selling price of your juices by 10%. It is expected that this would result in a 10% increase in sales volume. Option 2 Buy a new juicing machine which introduces efficiencies and better quality into your juicing process. This would result in the direct labour cost per unit decreasing by 50% but fixed production overhead would increase by SAR25,000 per year. Option 3 In addition to supplying the current demand of 20,000 juices at SAR20 per drink, you have been approached by Pink Berry' a popular frozen yoghurt chain that would like to sell your juices alongside their own product. However, this would mean selling your juices to them at SAR16 per drink. The direct ingredients (fruit), direct labour and variable production cost would be the same as for the current juices. Delivery costs would be SARS per drink and the company's fixed production overhead would increase by 5%, while fixed selling and administration costs would increase by 10%. Requirements: a) Using the information in the Income Statement of Fruity Juices Ltd, for the year ended 31 December 2014, calculate the: contribution per unit (2 marks)
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