Komfwe’s Bibbentucke full cost statements appears as follows: Cost centre Cost (ZMW) Direct labour 16 000 Direct materials 20 000 Direct expenses 4000 Total direct costs 40 000 Indirect expenses Rent 8000 Telephone 1500 Transport 1000 Marketing 3000 Repair and maintenance 2500 Water 1000 Electricity 3000 Depreciation 1000 Insurance 700 Finance cost 300 Total indirect costs 21 000 Total cost 61 000 Komfwe’s Bibbentuckers budgets to leans 100 pieces of clothes’ during the financial year. If the cleaning price per clothe is ZMW 600 and variable cost per unit would be ZMW 400. Looking ahead to the financial year ending 31 st December 2021, the directors of Komfwe Bibbentuckers limited are faced with a budgeted loss of ZMW 10,000 Budgeted units 100 Selling price per unit ZMW600 Variables costs per unit ZMW400 Fixed cost ZMW 21 000 The directors would like to aim for a profit of ZMW 20 000. Various proposals have been put forward, none of which require a change in the budgeted levels of fixed costs. a) Reduce the selling price per unit by 10 percent b) Increase the selling price of each unit by 10 percent c) Stimulate sales by improving the quality of the product, which would increase the variable cost of the unit by ZMW 15 per unit i) For each proposal calculate: • The break-even point in units in value terms
Komfwe’s Bibbentucke full cost statements appears as follows:
Cost centre Cost (ZMW)
Direct labour 16 000 Direct materials 20 000 Direct expenses 4000 Total direct costs 40 000
Indirect expenses
Rent 8000 Telephone 1500 Transport 1000 Marketing 3000 Repair and maintenance 2500 Water 1000 Electricity 3000
Total cost 61 000
Komfwe’s Bibbentuckers budgets to leans 100 pieces of clothes’ during the financial year. If the cleaning price per clothe is ZMW 600 and variable cost per unit would be ZMW 400.
Looking ahead to the financial year ending 31 st December 2021, the directors of Komfwe Bibbentuckers limited are faced with a budgeted loss of ZMW 10,000
Budgeted units 100
Selling price per unit ZMW600
Variables costs per unit ZMW400
Fixed cost ZMW 21 000
The directors would like to aim for a profit of ZMW 20 000. Various proposals have been put forward, none of which require a change in the budgeted levels of fixed costs.
a) Reduce the selling price per unit by 10 percent
b) Increase the selling price of each unit by 10 percent c) Stimulate sales by improving the quality of the product, which would increase the variable cost of the unit by ZMW 15 per unit
i) For each proposal calculate:
• The break-even point in units in value terms
• The number of units of clothes required to be cleaned in order to meet the profit target of ZMW 20 000
• State which proposal you think should be adopted to rescue Komfwe’sBibbentuckers cleaning enterprise and Explain why you have adopted the proposal?
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