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QUESTION $2$

$[17$ MARKS$]$

A summary of a manufacturing company's budgeted profit statement for its next financial year, when it expects to be operating at $75$ per cent of capacity, is given below.

$\backslash$table$[[,$R$,$R$],[$Sales $(10000$ units @R$650),,6500000],[$Less:$,,],[$Direct materials,$1700000,],[$Direct labour,$1300000,],[$Fixed production overhead,$850000,],[$Variable production overhead,$330000,],[,,4180000],[$Gross profit,,$2320000],[$Less:$,,],[$Fixed administration, selling & distribution costs,$751400,],[$Variable administration & distribution costs,$295000,],[$Sales commission $(5\%$ of sales$),325000,],[,,1371400],[$Net profit,,$948600]]$

It has been estimated that:

$($i$)$ if the selling price per unit were reduced to R$570,$ the increased demand would utilise $90$ per cent of the company's capacity $($i$.$e$.,12000$ units$)$ without any additional advertising expenditure;

$($ii$)$ to attract sufficient demand to utilise full capacity would require a $15$ per cent reduction in the current selling price and a R$100000$ special advertising campaign. Assume that the full capacity is $13350$ units.

REQUIRED:

$2\mathrm{.}1.$ Calculate the profit and breakeven point in units, based on the original budget.

$(5)$

$2\mathrm{.}2.$ Calculate the profits which would result from each of the two alternatives and compare them with the original budget.

$(6)$

$2\mathrm{.}3.$ Calculate the breakeven points which would result from each of the two alternatives and compare them with the original budget.

$(6)$

$2\mathrm{.}1$ Calculate Profit and breakeven point in units,based on the original budget

$2\mathrm{.}2$ Profits which would result from each of the two alternatives and compare them with the original budget.

$2\mathrm{.}3$ breakeven points which would result from each of the two alternatives and compare them with the original.

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