Reference no: EM132499504

Point 1: Seiko Manufacturers is expected to commence business on 01 July 2020, making smart watches. The budgeted figures for July 2020 (Question 1) and August 2020 (Question 2) are provided below. You are expected to assist Seiko Manufacturers in its planning phase by undertaking CVP analysis and preparing an income statement using absorption costing.

Question 1: Information The following information was extracted from the budget of Seiko Manufacturers for the month ended 31 July 2020. Estimated production and sales Selling price per watch Variable manufacturing costs per watch: - Direct materials - Direct labour - Overheads Fixed manufacturing overheads Marketing and administrative costs: Fixed costs Variable costs 3 000 units R900 R270 R180 R90 R282 000 R150 000 10% of sales MODULE MANAGEMENT ACCOUNTING TOTAL MARKS 20 MARKS Required Answer each of the following questions independently from the information given above:

Question 1.1 Calculate the break-even quantity.

Question 1.2 Calculate the target sales value using the marginal income ratio, if a profit of R600 000 is desired.

Question 1.3 The sales manager made the following proposal to increase profitability: Decrease the selling price by R40 per unit and increase advertising expense by R24 000 with the expectation that sales volume will increase by 10%. Should the sales manager's proposal be accepted? Motivate your answer with the relevant calculations.

Question 2: Information The financial manager of Seiko Manufacturers provided the following budgeted information for the month ended 31 August 2020:

Estimated production Estimated sales Selling price per watch Variable manufacturing costs per watch Fixed manufacturing overheads

Marketing and administrative costs: Fixed costs Variable costs per watch sold 5 000 units 4 500 units R900 R550 R300 000 R150 000 R100

Question 2.1 Prepare the Income Statement for the month ended 31 August 2020 using the absorption costing method.