The safety margin, Financial Management

Norfolk Ltd is specialized in producing & selling air conditions.  In 2010, the manufacturing cost per unit included:
                                                                              £
Direct material                                                       200
Direct labor (20 minutes per unit)                          90/hour
Variable manufacturing overhead                              30
Variable selling expenses                                        50
Variable administrative expenses                             10

Fixed costs for the year ended 31 December 2010 were:
                                                                          £000
Fixed manufacturing                                              1,500
Fixed selling and distribution                                 1,700
Fixed administrative                                               800

The company produced and sold 275,000 units at £400 per unit.

In 2011, management has decided to enhance the selling price by 15% and to maintain the similar contribution margin ratio as last year. This increase in price is to meet an increase of £2,440,000 in fixed costs in 2011. The company has produced and sold the similar quantity in 2011 as last year.

1)    Calculate the break-even point in units for the two years 2010 and 2011 and comment on the re sults (10%)

2)    Calculate the safety margin for both years and comment on the results (5%)

3)    In the light of your answer to the previous two points, evaluate the company's policy in increasing the price by 15% in 2011 (5%).

Posted Date: 3/15/2013 2:22:23 AM | Location : United States







Related Discussions:- The safety margin, Assignment Help, Ask Question on The safety margin, Get Answer, Expert's Help, The safety margin Discussions

Write discussion on The safety margin
Your posts are moderated
Related Questions
State about the capital structure of financial risk Frequently the funds supplied to a firm by lenders will change its financial structure and charge for the funds would be bas

Diversification A  strategy  which tends to move  into  new  products  and  new  markets  in  which  organisation is unfamiliar with. Related for example vertical forwar

Random Number Generation Since we have said that competitors' average price, quantity sold and cost behave in a random fashion but follow a normal distribution, if we want to d

Why do businesses spend time, effort, and money to produce forecasts?  Explain. Businesses succeed or fail relies on how well organized they are to deal with the situations they

Criticism of Profit Maximization Approach: (i) Ambiguous: - One practical complexity with this approach is that the term profit is ambiguous. Different people take dissimilar me

Put option is the right of the investor which he may exercise on the date at the put price given in the indenture. Normally, put price is in par value. When yield rises

Thomas book sales, inc. supplies texbooks to college and university bookstore. The books are shipped with a proviso that they must be paid for within 30 days but can be returned f

At the end of the fiscal year ending June 30, 2003, Microsoft reported common equity of $64.9 billion on its balance sheet, with $49.0 billion invested in financial assets (in the

Question 1 International trade is the economic interaction among different nations involving the exchange of goods and services. Discuss the role of Banks in International Trade T

1: How will you inform your managers and supervisors about budgets, reporting requirements and financial delegations? 2: What mechanism you will implement to ensure that there a