Pam Daws owns a business that produces sandwich toasters for the catering industry. The following is the budgeted unit data for Year 3 of the business
2. Use Pages 6–9 of the Workbook to answer this question.
PART A
Pam Daws owns a business that produces sandwich toasters for the catering industry.
The following is the budgeted unit data for Year 3 of the business.
Selling price £70
Raw materials £10
Labour (3 hours) £8 per hour
Variable overheads £4 per labour hour
Total budgeted fixed costs are £96,000
Total production is expected to be 14,000 units
Using the above information, calculate:
(a) Total variable cost per unit;
(b) Contribution per unit;
(c) Break-even point in units and sales value;
(d) Margin of safety (in units and sales value) at a production level of 7,000 units;
(e) Profit/loss if all the expected production units are sold.
PART B
Piotr Czerniak manufactures safety helmets for Equestrian riders. He has provided
the following data.
Contribution per unit £40
Break-even point 1,500 units
(a) Calculate the total Fixed Costs.
(b) Calculate how many units Piotr needs to sell to make a profit of £30,000.
Piotr expects the following changes to take place in the coming year:
• Fixed costs to reduce by 5%
• Selling price to increase by £4
• Variable cost per unit to reduce by £3·50
(c) Calculate the change in break-even point based on the expected changes above.
(d) (i) Outline two advantages of calculating accounting ratios.
(ii) Suggest three actions that could be taken when a negative closing balance
is identified in a Cash Budget.
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