Reference no: EM132967297

Problem - Tim's Timber is in the business of processing timber from the forest to the hardware store. At present, the company has annual sales of $25,000,000 selling 290,000 tonnes of timber. Tim is ambitious and wants to increase his sales and develop the business' reputation. In order to do this, Tim plans to promote his business' environmentally friendly processes by way of a marketing campaign showcasing their environmental practices. This campaign has been quoted to cost $495,000, and is expected to increase sales by $3 750 000. The following table captures the company's production and operational costs.

Costs Direct labour $7 500 000

Production overhead (50% ?xed, 50% variable) 10 000 000

Selling and admin expenses (65% ?xed, 35% variable) 5 000 000

Required -

A. Calculate the breakeven point in units for Tim's Timber.

B. Calculate the contribution margin ratio for Tim's Timber.

C. Tim asks for your opinion on whether he should proceed with the marketing campaign. Based on the information provided, would you recommend Tim proceeds? Why or why not? Use a calculation to support your answer.