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Question 2 Kerry Furniture Ltd is a firm based in Birmingham. The company is famous for manufacturing mattresses, one of which is a luxury mattress. As a management consultant, you have been hired to review the profitability of manufacturing and selling the luxury mattress. The costs for each mattress are as follows: Direct materials per mattress 300 Direct labour cost per mattress (each mattress takes 5 hours) 100 Other variable manufacturing costs per mattress 150 Annual fixed costs 700,000 Demand for the luxury mattress is growing and the company expects to produce and sell 2,450 units at a selling price of £900 per mattress, next year. Required The managing director of the company has requested you to calculate the following information to present in the next board meeting. a) The contribution per unit and the breakeven point in unit sales and revenue (£). b) The margin of safety in percentage and unit terms. c) The number of units to be sold to make a profit of £220,000.

Question 2 Kerry Furniture Ltd is a firm based in Birmingham. The company is famous for manufacturing mattresses, one of which is a luxury mattress. As a management consultant, you have been hired to review the profitability of manufacturing and selling the luxury mattress. The costs for each mattress are as follows: Direct materials per mattress 300 Direct labour cost per mattress (each mattress takes 5 hours) 100 Other variable manufacturing costs per mattress 150 Annual fixed costs 700,000 Demand for the luxury mattress is growing and the company expects to produce and sell 2,450 units at a selling price of £900 per mattress, next year. Required The managing director of the company has requested you to calculate the following information to present in the next board meeting. a) The contribution per unit and the breakeven point in unit sales and revenue (£). b) The margin of safety in percentage and unit terms. c) The number of units to be sold to make a profit of £220,000.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 2 Kerry Furniture Ltd is a firm based in Birmingham. The company is famous for manufacturing mattresses, one of which is a luxury mattress. As a management consultant, you have been hired to review the profitability of manufacturing and selling the luxury mattress. The costs for each mattress are as follows: £ Direct materials per mattress 300 Direct labour cost per mattress (each mattress takes 5 hours) 100 Other variable manufacturing costs per mattress 150 Annual fixed costs 700,000 Demand for the luxury mattress is growing and the company expects to produce and sell 2,450 units at a selling price of £900 per mattress, next year. Required The managing director of the company has requested you to calculate the following information to present the next board meeting. a) The contribution per unit and the breakeven point in unit sales and revenue (£). b) The margin of safety in percentage and unit terms. c) The number of units to be sold to make a profit of £220,000. Following a recent review of wages paid by competitors, Kerry Ltd has agreed to increase hourly wages for its production staff to £30 to avoid losing skilled staff. They also forecast that annual fixed costs will increase by £150,000. Consequently, they have decided to increase the selling price by 15%, but this is expected to reduce the sales forecast to 1,950 mattresses. Other costs are expected to remain the same. Required From this new information, you are also asked to calculate the following: d) The contribution per unit and the breakeven point in unit sales and revenue. e) The new margin of safety in percentage and unit terms. ) Explain the impact these changes to budget assumptions is likely to have on the risk of making a loss and suggest 3 steps Kerry furniture Ltd could take to reduce the risk of making a los.
Transcribed Image Text:Question 2 Kerry Furniture Ltd is a firm based in Birmingham. The company is famous for manufacturing mattresses, one of which is a luxury mattress. As a management consultant, you have been hired to review the profitability of manufacturing and selling the luxury mattress. The costs for each mattress are as follows: £ Direct materials per mattress 300 Direct labour cost per mattress (each mattress takes 5 hours) 100 Other variable manufacturing costs per mattress 150 Annual fixed costs 700,000 Demand for the luxury mattress is growing and the company expects to produce and sell 2,450 units at a selling price of £900 per mattress, next year. Required The managing director of the company has requested you to calculate the following information to present the next board meeting. a) The contribution per unit and the breakeven point in unit sales and revenue (£). b) The margin of safety in percentage and unit terms. c) The number of units to be sold to make a profit of £220,000. Following a recent review of wages paid by competitors, Kerry Ltd has agreed to increase hourly wages for its production staff to £30 to avoid losing skilled staff. They also forecast that annual fixed costs will increase by £150,000. Consequently, they have decided to increase the selling price by 15%, but this is expected to reduce the sales forecast to 1,950 mattresses. Other costs are expected to remain the same. Required From this new information, you are also asked to calculate the following: d) The contribution per unit and the breakeven point in unit sales and revenue. e) The new margin of safety in percentage and unit terms. ) Explain the impact these changes to budget assumptions is likely to have on the risk of making a loss and suggest 3 steps Kerry furniture Ltd could take to reduce the risk of making a los.
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