Rozar Ltd (RL) specialises in the manufacturer of luxury furniture for the gaming market. It is considering launching a new range of funiture. Based on market research performed, the company has estimated the following: Selling price Units Gaming chair 2,800 380 Message chair 3.200 420 Standing Desk 3,600 400 Estimated production costs per unit: Gaming chair (S) Message chair ($) Standing Desk ($) Material 300 400 900 500 975 Labour S00 Variable overhead Fixed overhead 220 220 245 35 35 40 There are the following additional information: Labour costs are split into 40% variable and 60% fixed. Fixed overheads are absorbed on the basis of units produced. All fixed costs are incremental, ie. if any of the new range of products is launched, all of the fixed costs would be incurred for the whole range. The management of RL would like to know if the new range will breakeven prior to committing to production.
Rozar Ltd (RL) specialises in the manufacturer of luxury furniture for the gaming market. It is considering launching a new range of funiture. Based on market research performed, the company has estimated the following: Selling price Units Gaming chair 2,800 380 Message chair 3.200 420 Standing Desk 3,600 400 Estimated production costs per unit: Gaming chair (S) Message chair ($) Standing Desk ($) Material 300 400 900 500 975 Labour S00 Variable overhead Fixed overhead 220 220 245 35 35 40 There are the following additional information: Labour costs are split into 40% variable and 60% fixed. Fixed overheads are absorbed on the basis of units produced. All fixed costs are incremental, ie. if any of the new range of products is launched, all of the fixed costs would be incurred for the whole range. The management of RL would like to know if the new range will breakeven prior to committing to production.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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List four (4) key assumptions underlying a multiproduct break-even analysis, and discuss how realistic they are in this case.
Transcribed Image Text:Rozar Ltd (RL) specialises in the manufacturer of luxury fumiture for the gaming market. It is
considering launching a new range of furniture. Based on market research performed, the
company has estimated the following:
Selling price
Units
Gaming chair
2,800
Message chair
3,200
420
Standing Desk
3,600
380
400
Estimated production costs per unit:
Gaming chair ($) Message chair ($) Standing Desk ($)
Material
300
400
500
Labour
800
900
975
Variable overhead
220
220
245
Fixed overhead
35
35
40
There are the following additional information:
Labour costs are split into 40% variable and 60% fixed.
Fixed overheads are absorbed on the basis of units produced.
All fixed costs are incremental, i.e. if any of the new range of products is
launched, all of the fixed costs would be incurred for the whole range.
The management of RL would like to know if the new range will breakeven prior to committing
to production.
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