Reference no: EM133180574

Questions - Starlight is a mobile manufacturing company that makes smartphones. The selling price of a smartphone is determined as £499. Being the chief financial officer (CFO) of the company, you have been asked to review the possible risks and returns of the company. The variable costs for each smartphone are provided as follows:

The fixed manufacturing overhead as well as selling and administrative costs of the company are £3,000,000 and £1,500,000 respectively. Starlight desires to produce and sell 500,000 phones in the next year.

Required - As a Chief Executive Officer (CEO) of the consultancy firm, you are required to calculate the following and compose a report.

1. What are the break-even units and sales revenue (£)?

2. What is the margin of safety?

3. The CEO of Starlight wishes to earn a profit of £25,000,000 in 2023. What are the required units she needs to produce and sell?

4. To enhance the company's performance, the chief executive officer (CEO) suggested spending more on advertisement both in electronic and print media. The estimated fixed costs increase by £1,000,000 per year (variable costs will remain the same). The CEO believes that such an increase in fixed costs would help to boost sales by 10% in the coming year. Referring to the original data, calculate and recommend whether the factory should accept this proposal.

5. A UK organisation makes a one-time special offer to Starlight to purchase 10,000 units of smartphones for its employees. It also demands some additional features and apps on the phones which cost (material and labour) £20 per phone. The Starlight will bear the shipping costs which would be £50,000. For this one-time offer, the UK organisation is willing to pay £480 per phone. Do you think that Starlight should accept this one-time offer? Justify your answer with supporting calculations.