Reference no: EM132205509
Question - Company A is a retailer targeting a return on sales and a return on investment of 10% each. The accountant compiled the following information:
|
|
Volume (units)
|
Unit cost/ price (£)
|
Total (£)
|
|
Sales
|
555,000
|
21.45
|
11,904,750
|
|
Purchases
|
555,000
|
14.30
|
7,936,500
|
|
Labour
|
555,000
|
1.43
|
793,650
|
|
Rent
|
|
|
2,280,000
|
|
Assets
|
|
|
29,600,000
|
1. Calculate the break-even point.
2. Calculate the return on sales.
3. Calculate the return on investment.
4. How many units does the company need to sell to reach a return on investment of 10%?
5. How many units does the company need to sell to reach a return on sales of 10%?
6. If the company lowers the price to £21, how much should the sales volume increase in order for the company to reach both a return on sales and a return on investment of at least 10%?
7. Another shop is ready to buy 300,000 units at £19 each. The purchasing costs would be the same but the labour cost for those 300,000 units would be reduced to £1 per unit. Discuss, from both a financial and strategic perspective, whether the company should accept the offer.
8. A leasing contract could reduce the assets owned by the company by 25%. The lease would cost £50,000 per year. Should the company do it? (To answer this question, ignore the suggestions made by employee A and employee B in (f) and (g) above).