Sale (50 000 units)Direct materialsDirect wagesFixed production overheadVariable production overheadAdministration overheadSelling and distribution overheadProfit/(loss)ii.(£000)iii.35020020050180120(£000)1,000There are several proposals that have been gathered for consideration:i.Pay salesmen a commission of 10 percent of sales and thus increase sales to achievebreak-even point.1,100(100)Reduce selling price by 10 percent, which would increase sales volume by 30 percent.Increase direct wage rates by 25 percent per unit, as part of a productivity deal. It isprojected that this would increase production and sales unit by 20 percent, andadvertising costs would also increase by £50,000.iv. Increase sales by having additional advertising of £300,000, with an increased sellingprice of 20 percent whilst setting a profit margin of 10 percent.Required:You need to evaluate the proposals by showing all the relevant workings and present this atthe Board of Directors meeting next month. Write a report to the Board of Directors byproviding the analysis of all four proposals above.

Some important factors considered in this > Sales , direct material,> Sales , direct material,…

Required: You need to evaluate the proposals by showing all the relevant workings and present this at the Board of Directors meeting next month. Write a report to the Board of Directors by providing the analysis of all four proposals above.

Required: You need to evaluate the proposals by showing all the relevant workings and present this at the Board of Directors meeting next month. Write a report to the Board of Directors by providing the analysis of all four proposals above.

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

100%

Sale (50 000 units)
Direct materials
Direct wages
Fixed production overhead
Variable production overhead
Administration overhead
Selling and distribution overhead
Profit/(loss)
ii.
(£000)
iii.
350
200
200
50
180
120
(£000)
1,000
There are several proposals that have been gathered for consideration:
i.
Pay salesmen a commission of 10 percent of sales and thus increase sales to achieve
break-even point.
1,100
(100)
Reduce selling price by 10 percent, which would increase sales volume by 30 percent.
Increase direct wage rates by 25 percent per unit, as part of a productivity deal. It is
projected that this would increase production and sales unit by 20 percent, and
advertising costs would also increase by £50,000.
iv. Increase sales by having additional advertising of £300,000, with an increased selling
price of 20 percent whilst setting a profit margin of 10 percent.
Required:
You need to evaluate the proposals by showing all the relevant workings and present this at
the Board of Directors meeting next month. Write a report to the Board of Directors by
providing the analysis of all four proposals above.

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Step 1: Step 1 - Key factors to be considered

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Step 2: Step 2 - Proposal 1, Salesmen commission to achieve break-even point.

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Step 3: Step 3 - Proposal 2, Reduce selling price by 10%

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Step 4: Step 4 - Proposal 3, increase wage rate by 25%

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Step 5: step 5 - Proposal 4, increase advertising expenses by 300,000 pound.

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