Question
PART A
A company manufactures a single product and the data concerning the product is as follows:
- Sales price of $10
- Marginal cost of $6.
- Fixed costs are $60,000 p.a.
Determine
a. Number of units to break-even.
b. Sales at break-even point.
c. Contribution/sales (C/S) ratio
d. What number of units will need to be sold to achieve a profit of $ 20,000 p.a
e. What level of sales will achieve a profit of $ 20,000 p.a
f. Because of increasing costs the marginal cost is expected to rise to $ 6.50 per unit and fixed costs to $ 70,000. If the selling price cannot be increased what can be the number of units required to maintain a profit of $ 20,000 p.a?
PART B
(i) Your company regularly uses material X and currently has in inventory 500 kgs for which it paid $ 1,500 two weeks ago. If this were to be sold as raw material, it could be sold today for $ 2.00 per kg. You are aware that the material can be bought on the open market for $ 3.25 per kg, but it must be purchased in quantities of 1,000 kgs.
Required:
Evaluate the relevant cost of 600 kgs of material X to be used in a job for a customer.
(ii) In the short term decision-making context, which one of the subsequent would be a relevant cost:
- Specific development costs already incurred.
- The cost of special material which will be purchased.
- The original cost of raw materials currently in inventory which will be used on the project.