Question

Question 2                                                                                                             [12 marks]

Blue Shade wants to launch a new product called Shady Blue in the market. The sales manager needs to present the opportunity to management. He approaches you to assist him in calculating the required information.

He provides you with the following information.

Purchase price of the product	R125,50/unit
Packaging cost	R10,00/unit
Labour needed to wrap the product before it can be delivered. (The product must be wrapped and cannot be sold without the wrapping)	Wrap 2 products per hour. The employees will be paid R160 per day. The company work a 8 hour day. The employees will be utilised somewhere else f there are no products to be wrapped
A supervisor needs to be appointed at a monthly cost of R15,000.
Delivery cost to the wholesalers will be charged at R300 per 10 units delivered.
Additional space will be rented at R5,000 per month.
Additional general administration expenses will amount to R2,500 per month

PBA4807

Required:

Assist the sales manager in calculating the following:

1.    The estimated sales price per unit. The company’s policy is a mark-up of 65% on variable cost.                                                                                                                              (5)

2.    The contribution per unit.                                                                                               (1)

3.    Break-even units to be sold to cover the additional costs.                                           (1)

4.    The number of units to be sold to achieve a profit before tax of 20% of the sales value.

(2)

5.    The number of units to be sold to achieve a profit after tax of 15% of the sales value. The tax rate is 28%.                                                                                                             (3)

Answer 1

Solution : 1.   

Material cost per unit		125.50
Add: packing cost p.u.		10.00
Add: Labour cost p.u.	(160/8)/2	10.00
variable cost p.u.		R145.50

(sale price - variable cost) ÷ variable cost = margin %

(sale price - variable cost) = variable cost x margin %

(sale price - 145.50) = 145.50 x 0.65

sale price = 94.575 + 145.50

sale price = 240.075 per unit

(2.) contribution per unit = sale price per unit - variable cost per unit

= 240.075 - 145.50

= R 94.575

(3) Let number of unit be n

In case of breakeven, sale = variable cost + additional cost

240.075n = 145.50n +15000 + 300n/10 +5000 +2500

240.075n = 175.5n + 22500

64.575 n = 22500

n = 349 units

(4) Profit = Sales - variable cost - aditional cost

20% x sale = Sales - variable cost - aditional cost

20% x 240.075n = 240.075n -145.50n -15000- 300n/10 -5000- 2500

48.015n = 64.575n - 22500

16.56n = 22500

n =1359 units

(5)   Profit before tax = Sales - variable cost - aditional cost

Profit after tax/ (1- 0.28) = Sales - variable cost - aditional cost

(15% x 240.075n) / (1- 0.28) = 240.075n -145.50n -15000- 300n/10 -5000- 2500

50.015n = 64.575n -22500

14.56n = 22500

n = 1546 units