Bella Limited has examined the use of a new product which is assumed to improve profitability. You are required to analyse the following data in order to assist Bella Limited decide on whether or not the new project is in fact viable. INFORMATION The data provided is based on expected sales of 15000 units with a selling price per unit of R810. The costs associated with this project includes the following: Direct materials cost (R2 700 000), Direct labour cost (R1 800 000). Variable overhead costs (765 000), Fixed manufacturing overhead costs (R702000) and Fixed administrative and selling costs (R167400). In addition, selling commission per unit sold is 10%. REQUIRED Study the information provided below and answer each of the following questions independently: Should management consider a selling price of R830, if the sales volume is expected to decrease by 300units? Motivate your answer showing the relevant calculations.
Bella Limited has examined the use of a new product which is assumed to improve profitability. You are required to analyse the following data in order to assist Bella Limited decide on whether or not the new project is in fact viable. INFORMATION The data provided is based on expected sales of 15000 units with a selling price per unit of R810. The costs associated with this project includes the following: Direct materials cost (R2 700 000), Direct labour cost (R1 800 000). Variable overhead costs (765 000), Fixed manufacturing overhead costs (R702000) and Fixed administrative and selling costs (R167400). In addition, selling commission per unit sold is 10%. REQUIRED Study the information provided below and answer each of the following questions independently: Should management consider a selling price of R830, if the sales volume is expected to decrease by 300units? Motivate your answer showing the relevant calculations.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Bella Limited has examined the use of a new product which is assumed to improve profitability. You are required to analyse
the following data in order to assist Bella Limited decide on whether or not the new project is in fact viable.
INFORMATION
The data provided is based on expected sales of 15000 units with a selling price per unit of R810. The costs associated
with this project includes the following:
Direct materials cost (R2 700 000),
Direct labour cost (R1 800 000),
Variable overhead costs (765 000),
Fixed manufacturing overhead costs (R702000) and
Fixed administrative and selling costs (R167400).
In addition, selling commission per unit sold is 10%.
REQUIRED
Study the information provided below and answer each of the following questions independently:
Should management consider a selling price of R830, if the sales volume is expected to decrease
by 300units? Motivate your answer showing the relevant calculations.
Expert Solution
Step 1Basic Information
The question is related to the Marginal Costing. In the given case first we will calculate Present Profit and then expected Profit if there is increase in expected profits, then we will increase the selling price to R830 from R810
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