Mrs Khoza and her daughter saw the need amongst young people for a dance academy in Johannesburg. They found a facility where they could conduct rehearsals and host performances. The facility consists of 5 studios that could be used for rehearsals and 2 larger halls that could be converted into areas to host performances. Mrs Khoza and her daughter decided that they are going to convert one of the larger halls into a gym and the other one into an auditorium. The 5 smaller studios will be fixed and receive mirrored-up walls and the necessary dance equipment. This facility cost R500 000 and the construction to convert all the rooms cost another R500 000. The total of R1 000 000 was financed by means of a loan. Interest of 8% p.a. is payable on the capital amount The academy will be open 6 days per week from 10:00 to 21:00 daily, with the exception of the days on which they host performances. The academy will be open the whole year, and they already have 5 performances during the course of the year. The following are budgeted costs and income for the academy for the coming year variable costs: Meals per day R500 Wages per day R600 Fixed costs: Administration R10 000 Utilities R40 000 Income: Per performance R100 000 Per day from studios R800 Monthly gym income R5 000 Calculate the revenue received for the year excluding the performances (income generated by the studios). Determine the net income for the year based on the direct costing method. The academy is open 6 days per week between 10:00 and 21:00; this is at 80% capacity. Discuss, with definitions, what effect a change from 80% capacity utilization to 90% capacity utilization would have on fixed costs and variable costs, separately. Calculate and interpret the break-even point in sales value. Calculate and interpret the margin of safety ratio.
Mrs Khoza and her daughter saw the need amongst young people for a dance academy in Johannesburg.
They found a facility where they could conduct rehearsals and host performances. The facility consists of 5 studios that could be used for rehearsals and 2 larger halls that could be converted into areas to host performances.
Mrs Khoza and her daughter decided that they are going to convert one of the larger halls into a gym and the other one into an auditorium.
The 5 smaller studios will be fixed and receive mirrored-up walls and the necessary dance equipment.
This facility cost R500 000 and the construction to convert all the rooms cost another R500 000. The total of R1 000 000 was financed by means of a loan. Interest of 8% p.a. is payable on the capital amount
The academy will be open 6 days per week from 10:00 to 21:00 daily, with the exception of the days on which they host performances. The academy will be open the whole year, and they already have 5 performances during the course of the year.
The following are budgeted costs and income for the academy for the coming year
variable costs:
Meals per day R500
Wages per day R600
Fixed costs:
Administration R10 000
Utilities R40 000
Income:
Per performance R100 000
Per day from studios R800
Monthly gym income R5 000
Calculate the revenue received for the year excluding the performances (income generated by the studios).
Determine the net income for the year based on the direct costing method.
The academy is open 6 days per week between 10:00 and 21:00; this is at 80% capacity. Discuss, with definitions, what effect a change from 80% capacity utilization to 90%
capacity utilization would have on fixed costs and variable costs, separately.
Calculate and interpret the break-even point in sales value.
Calculate and interpret the margin of safety ratio.
Capacity Utilisation:
It is the % of total capacity of the business that is actually being attained in a given period.
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