Reference no: EM132568382

The following budgeted details for 2020 relate to a product manufactured by Kito Limited:

Sales R50 000

Variable cost per unit sold R7.50

Total fixed cost R12 500

Sales volume 2 500 units

Consider the following situations independently:

Question 1: Calculate the operating profit.

Question 2: Suppose sales increase by R10 000 without changes to any costs. By what amount will contribution margin and operating profit increase? 

Question 3: Suppose fixed costs increase by R3 000. By how much must sales increase if operating profit was to remain unchanged?

Question 4: Would you recommend an advertising programme costing R5 000 that would generate an additional R10 000 of sales? Why? 

Question 5: Calculate the volume of sales required to achieve an operating profit of R20 000.

Consider the following situations independently and in each case motivate your answer by doing the relevant calculations:

Question 6: Should management consider a drop of R2 per unit in the selling price if sales volume is expected to increase by 200 units?

Question 7: Should management adopt the following proposal? Decrease the selling price by R4 and increase marketing costs by R8 000 with the expectation of an increase in sales to 5 000 units.