Reference no: EM133022880

Question - A manufacturing company called QFood Ltd has been trading for 1 year with an initial capital investment of £2,000,000. It produces ready meals for major food retailers (the product) with each meal classed as a unit. The selling price of each unit is £5.00. The Managing director is concerned he may not be achieving his desired return on his investment and has requested your assistance in reviewing the financial situation. He has provided you with the following information, which relates to monthly costs in which the company sells an average of 39,000 units. Costs: £ Food contents 15,000 Direct labour 30,000 Packaging 12,000 Electricity 60,000 Local authority Tax 2,500 Admin costs 15,000 Other fixed costs 10,000 Depreciation 6,000 Salaries 20,000 Insurance 15,000 Salesman commission 5,000 Electricity is semi-variable, with 30% being fixed You are to presume that the products are produced and sold evenly throughout the year.

Required -

a) Identify and allocate the costs into three categories, variable, semi-variable and fixed.

b) Calculate total fixed costs and variable costs per unit.

c) Calculate the break-even position of the company.

d) Calculate the margin of safety in turnover terms.

e) Determine the profit at the current demand level.

f) Accurately draw a graph showing the following: Fixed costs, total variable cost, total cost, total revenue, break-even point and margin of safety. Make sure to label your graph appropriately.

g) The director has decided that it is important to him to achieve a ROCE of 8%. How many units in total would he need to sell to achieve this and is this level currently being met?