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
Question 1 Explain the components of Indian Financial System Question 2 Write a short note on Primary and Secondary markets Question 3 Explain the Investment optio

Under what circumstances will the foreign subsidiary’s financial structure become relevant? The subsidiary’s own financial structure will become applicable when the parent firm

What is Global Depository Receipts American / Global Depository Receipts (ADRs/ GDRs) Equity shares which are offered in international markets to international investors a

What are the benefits of "collecting early" and how do companies attempt to do this? A fund has time value.The sooner money is collected the better.  Companies utilize regional

In an integrated world financial market, a financial crisis in a country can be rapidly transmitted to other countries, causing a global crisis. What kind of measures would you pro

The value of node is determined using a methodology called backward induction. The value at any node depends on the future cash flows; therefore, we need to start from

Fixed Costs The costs a rigid incurs doing business that do not change in relation to production. Rent, for example, is a fixed cost because it remains constant whether product

The effective maturity of a callable bond can be anywhere between the first call date and its maturity date due to the presence of the call feat

Enumerate the Present Value of an Annuity Present value of an annuity can be calculated by: Present Value = A [ {(1+i) n -1} / i (1+i) n ] Or to use the tables change

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