QUESTION THREE

INFORMATION

Blaze Manufacturers plans to start ‘Project Supreme’ and the following information is applicable to the project for the first financial year:

The estimated sales for the financial year are 2000 units with a selling price of R800 per unit. The variable manufacturing cost per unit and sales commission per unit are R420 and R60 respectively. Furthermore, Fixed manufacturing overheads are R330 000 and fixed administrative expenses are R150 000.

REQUIRED

Study the information provided below and answer the following questions independently: 

3.1 Calculate the expected total Marginal Income and Net Profit/Loss.

3.2 Calculate the break-even quantity.

3.3 Calculate the break-even value, if the fixed costs are 10% greater than anticipated.

3.4 Calculate the number units required to break-even if the selling price is reduced by R40, and sales commission is calculated at 10% of the selling price.

3.5 Suppose Blaze Manufacturers wants to make provision for an increase in advertising by R30 000 and a drop in the selling price by R100 per unit, with the expectation that sales will increase by 400 units. Will profitability improve? Motivate your answer with the relevant calculations.