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Manchester LTD manufactures FIFA computer games. Last year Manchester sold 5000 games at $500 each. The variable cost of each game was $300, and the firms fixed cost amounted to $500,000 per year.
In an attempt to improve its product, the company is considering replacing a component part that has a cost of $100 with a new and improved part costing $150 per unit in the coming year.
Required
a. What was Manchester's contribution margin ratio last year? (3 marks)
b. What was Manchester's breakeven point in number of units last year? (3 marks)
c. What will be the new breakeven point in number of units be if the suggested changes is not made in the coming year, however, fixed cost increased by 10%
d. How many computer games would have had to sell last year to earn a target net profit of $1,000,000?
e. If Manchester holds the sale price constant and makes the suggested changes, how many units must be sold in the coming year to earn a target net profit of $1,000,000?

Alfred Wood operates a factory that manufactures bread and cakes. One of the major raw materials used is organic maze, which he buys for $5 per kilogram. The factory operates for 350 days each year. The following information has been provided:
Annual usage of maize 80 000 kilograms
Average time between placing and receiving order 4 days
Average cost of ordering and receiving inventory (per order) $8.00
Estimated annual costs of carrying a kilogram of maize in stock $0.50
Required
1. Use the above data to calculate:
a. Economic order quantity (4 marks)
b. Number of orders per year (4 marks)
2. Wood has recently heard of just-in-time (JIT) purchasing and wonders if he should use it in his business. However, he is very concerned that the cost of placing frequent orders will be too high. Explain the three advantages of JIT purchasing and addresses specifically his concerns about cost.

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