Rothko Ltd produces a single product for distribution to wholesalers. The product has a selling price of GH¢10 per unit. Variable costs of production are GH¢5 per unit, and fixed costs of production are GH¢50,000 per annum. The distribution of the product results in additional costs of GH¢1 per unit (variable) and GH¢11,500 per annum (fixed) 1. Calculate the expected break-even quantity and revenue.  2. Assuming Rothko Ltd predicts sales of GH¢200,000 for the year, calculate the expected profit (assuming sales and production are equal). 3. The company does have some idea about the effects on demand of changes in prices, advertising, competitors’ action, e Assume that a 5% decrease in price will increase total volume by 15% (in units); that an additional expenditure of GH¢7,500 on advertising will further increase the original volume by 5%, but that the increased production will result in an increase in variable costs of production by GH¢0.1 per unit in excess of 21,000 unit. Maximum practical capacity is 25,000 units. What effect will these changes have on net profit?

Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter7: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 46E: Lotts Company produces and sells one product. The selling price is 10, and the unit variable cost is...
icon
Related questions
icon
Concept explainers
Question

Rothko Ltd produces a single product for distribution to wholesalers. The product has a selling price of GH¢10 per unit. Variable costs of production are GH¢5 per unit, and fixed costs of production are GH¢50,000 per annum. The distribution of the product results in additional costs of GH¢1 per unit (variable) and GH¢11,500 per annum (fixed)

1. Calculate the expected break-even quantity and revenue. 

2. Assuming Rothko Ltd predicts sales of GH¢200,000 for the year, calculate the expected profit (assuming sales and production are equal).

3. The company does have some idea about the effects on demand of changes in prices, advertising, competitors’ action, e Assume that a 5% decrease in price will increase total volume by 15% (in units); that an additional expenditure of GH¢7,500 on advertising will further increase the original volume by 5%, but that the increased production will result in an increase in variable costs of production by GH¢0.1 per unit in excess of 21,000 unit. Maximum practical capacity is 25,000 units. What effect will these changes have on net profit? 

4. As an alternative, Rothko Ltd can also expand its sales volume by 20% by offering its wholesalers a rebate of 1% on all the units they purchase, and by incurring advertising expenditure of GH¢20,0

5. Is this a better alternative than (3)? Support your reasoning with calculations.    

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Cost volume profit (CVP) analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Principles of Cost Accounting
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT