Unhand Is planning next year’s acuity and Its forecasts for the year ended 31 October 2014 are as follows: 1. A reduction In selling price per car alarm to ARM per alarm Is expected to Increase sales volume by 50%. 2. Materials costs per unit will remain unchanged, but 5% quantity discount will be obtained. 3. Hourly direct wage rates will increase by 10%, but labor efficiency will be unchanged. 4. Variable selling overheads will increase in total in line with the increase in sales revenue. 5. Variable production and distribution overheads will increase in line with the 50% increase in ales volume. 6.
All fixed costs will Increase by 25%. You are required to do the following: a) Prepare a budgeted profit statement for the year to 31 October 2014 showing total sales and marginal costs for the year and also contribution and net profit per unit. (16 marks) b) Calculate the break-even point for the two years and explain why the break-even point has changed. Comment on the margin of safety In both years. (13 marks) same profit in 2014 and in 2013. (3 marks) d) A director comments that With these figures, all we have to do to work out our gutted profit is to multiply the net profit per unit by the units we want to sell”.
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Why is this statement incorrect? (3 marks) Satins Bertha is considering diversifying their business activities and they are currently reviewing two proposals. Proposal A is to launch their own television station whilst Proposal B is a Joint venture with Kabob Limited to launch a satellite that would enable the African region to receive advertisements for both company’s products. The available data is follows: Proposal A – TV Station Initial set-up costs: REARM million Annual running costs: OROMO million
Estimated life of project: 5 years Value of assets released at the end of the project: ARMS million Increased sales as a result of advertising products: ARMS million in the first year, growing cumulatively by 50% each year for the following four years. Project B – Satellite Initial set-up costs: REARM million Annual running costs: ARMS million Value of assets released at the end of the project: RMI million (Note: all the above to be shared 50/50 with Kabob Limited).