The marketing manager of Xtra Energy introduced a marketing campaign that is expected to double the current sales volume. If the company’s goal is to increase current net income of the product by 50%, calculate the maximum amount that can be spent on a marketing campaign. Assuming the variable cost per unit and fixed cost remained constant.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Xtra Energy is a company that produces energy drinks in a variety of flavors. The orange flavor is the most popular, especially amongst the trail running athletes.
The following information relates to one of their popular products, the orange flavor:
|
Selling price per unit |
R20.00 |
|
Variable cost per unit |
R6.50 |
|
Fixed cost per unit* |
R10.00 |
|
Annual sales in units |
99 000 |
*Fixed cost was allocated based on an expected annual production of 100 000 units.
REQUIRED:
The marketing manager of Xtra Energy introduced a marketing campaign that is expected to double the current sales volume. If the company’s goal is to increase current net income of the product by 50%, calculate the maximum amount that can be spent on a marketing campaign. Assuming the variable cost per unit and fixed cost remained constant.
Round off to 2 decimal places where required.
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