Refer to the three proposals that the company was considering to assist the previously disadvantaged women and answer each of the questions independently. (You are advised to use the expanded contribution margin model to present your answers.)Based on the figures achieved for July to December 2022, calculate the selling price per litre that would have enabled the service station to break even.Based on the figures achieved for July to December 2022, how many litres of diesel would have had to be sold to achieve an operating profit of R2 per litre?Calculate the total Contribution Margin and Operating Profit/Loss per month if Proposal 1 is implemented.How many litres of diesel need to be sold each month to achieve the operating profit of R25 000 per month, if Proposal 2 is accepted?Calculate the saving in monthly fixed costs that is necessary to yield an operating profit of R30 000 if Proposal 3 is accepted. CAPRI LIMITEDSTATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022SalesCost of salesGross profitOperating expensesOperating profitInterest expenseInterest incomeProfit before taxCompany taxProfit after taxR8 400 000(5 304 000)3 096 000(1 596 000)1 500 000(324 000)120 0001 296 000(390 000)906 000In addition to the above, the following information is available:Interim dividends paid in 2022 amounted to R456 000. 511 800 shares were in issue during 2022. Themarket price per share was R17.25 on 31 December 2022.During 2022 the management of Capri Limited considered the acquisition a new machine for purchase andinstallation during the second quarter of 2024 with a desired rate of return of 15%. The machine will costR6 000 000 excluding import duties of R250 000 and will have a useful life of five years. The machine isexpected to increase cash inflows by R2 000 000 per year but cash expenses will increase by R300 000 peryear. Depreciation is calculated using the straight-line method.At the end of December 2022 the company was approached by a group of previously disadvantaged womenwho had opened a service station on 01 July 2022, selling only diesel. They needed assistance in improvingthe financial performance of the service station. Diesel was sold at R16 per litre and the variable costs totalledR14 per litre. The fixed costs were R135 000 per month. After six months of opening, the sales achieved was540 000 litres and the sales were almost the same each month. To improve the performance, the CapriLimited considered the following proposals: Proposal 1Customers will be allowed to purchase diesel on credit. It is estimated that 60% of the average monthly sales(in litres) will be to customers who would take advantage of this opportunity. Sales to these customers shouldincrease by 25% as they are expected to buy exclusively from this service station. Sales volumes tocustomers who do not take advantage of the credit policy are expected to remain unchanged. Additional costsarising from this proposal are expected to be:Bad debts of 1% of the sales value in respect of customers who use the credit facility.Fixed administrative costs of R7 500 per month.Proposal 2An operating profit of R25 000 per month would be the target. To achieve this the following changes aresuggested:The selling price is reduced by R0.30 per litre.A sales commission of R1.50 per 10 litres sold will be granted to the diesel attendants.R5 075 per month will be spent on advertising.Proposal 3The possibility of only operating from 06:00 to 22:00 is being considered. This earlier closing time is expectedto result in a loss of sales on average of 12 500 litres per month. It is hoped that the saving in fixed costsresulting from the reduction in operating hours will enable the entrepreneur to achieve an average monthlyoperating profit of R30 000.

CVP (Cost, volume and profit) analysis is a management accounting tool which is used to study the…

Answered: Customers will be allowed to purchase…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q