Coffee pod sales grew rapidly in the UK in 2015 with an estimated total of 320m individual pods sold. Executives of Lavazza are considering launching a coffee pod under the Delizioso brand name. The pods would be used in a proprietary machine and 1 sales unit would comprise 16 pods each of which make one cup of coffee. The sales unit retail price is £6. The budget prepared shows the following information: Per 16 pods £ Outer Packaging 0.5 Direct Labour and materials 2.0 Advertising 1,000,000 Product Manager and other fixed costs 1,250,000 Price to retailer 4.0 a) Calculate the following: i. Contribution per unit ii. Break-even volume in units and £ iii. Net profit if 2.5 million packs are sold (2.5m units is their budgeted target) iv. Necessary unit volume to achieve a £600,000 profit v. How realistic is a sales target of 2.5m packs?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Coffee pod sales grew rapidly in the UK in 2015 with an estimated total of 320m individual pods sold.
Executives of Lavazza are considering launching a coffee pod under the Delizioso brand name. The pods would be used in a proprietary machine and 1 sales unit would comprise 16 pods each of which make one cup of coffee. The sales unit retail price is £6.
The budget prepared shows the following information:
| Per 16 pods | £ |
| Outer Packaging | 0.5 |
| Direct Labour and materials | 2.0 |
| Advertising | 1,000,000 |
| Product Manager and other fixed costs | 1,250,000 |
| Price to retailer | 4.0 |
a) Calculate the following:
i. Contribution per unit
ii. Break-even volume in units and £
iii. Net profit if 2.5 million packs are sold (2.5m units is their budgeted target)
iv. Necessary unit volume to achieve a £600,000 profit
v. How realistic is a sales target of 2.5m packs?
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