Lomax Ltd sells the bricks that it produces in pallets, with each pallet containing 500 bricks. The following budgeted information for 2022 is available: The number of pallets that are expected to be produced and sold during 2022 is 30 000. Each pallet is expected to be sold for R500. The direct materials cost per brick is R0.14 whilst the direct labour cost per brick is R0.08. R0.04 per brick goes towards variable manufacturing overheads. Fixed manufacturing overheads are expected to total R1 500 000. Annual advertising and salespersons salaries are estimated at R2 160 000.The salespersons are also entitled to a sales commission of 6%. Fixed administration costs are expected to be R3 840 000 whilst other administration costs are estimated at R40 per pallet sold. The management is examining various proposals to assist in decision-making for 2022
REQUIRED
Answer each of the following questions independently. As far as possible use the expanded contribution margin model to present your answers.
- Calculate the total Contribution Margin and Operating
Profit (Loss ) if all 30 000 pallets are
Sold.
.calculate the margin of safety (as a percentage) for 2022
- Use the contribution margin ratio to calculate the sales value required to achieve an operating profit of R6 000 000.
- Suppose an additional R300 000 is spent on advertising in order to increase the sales by 3 000 Calculate the number of pallets that need to be produced and sold to break even.
- Suppose the management team of Lomax Ltd is considering a R30 per pallet decrease in the selling price with the expectation that this would increase the sales volume by 10%. Is this a good idea? Motivate your answer with the relevant calculations.
- Determine the selling price per pallet that will enable Lomax Ltd to achieve an operating profit of R3 192 000.
INFORMATION
Lomax Ltd sells the bricks that it produces in pallets, with each pallet containing 500 bricks. The following budgeted information for 2022 is available:
The number of pallets that are expected to be produced and sold during 2022 is 30 000. Each pallet is expected to be sold for R500. The direct materials cost per brick is R0.14 whilst the direct labour cost per brick is R0.08. R0.04 per brick goes towards variable manufacturing overheads. Fixed manufacturing overheads are expected to total R1 500 000. Annual advertising and salespersons salaries are estimated at R2 160 000.The salespersons are also entitled to a sales commission of 6%. Fixed administration costs are expected to be R3 840 000 whilst other administration costs are estimated at R40 per pallet sold.
The management is examining various proposals to assist in decision-making for 2022
Step by step
Solved in 2 steps
