- You are provided with the following information for Murray Ltd.
Total £
Sales (7,500 units) 1,575,000
Materials 450,000
Variable labour costs 225,000
Variable overheads 150,000
Fixed overheads 180,000
Profit 570,000
REQUIRED
Calculate the following figures (working to one decimal place), in each case explaining your method and the usefulness of your results:
a) Calculate total contribution and contribution per unit.
b) Calculate break-even point in units and pounds.
c) Calculate the margin of safety in units and percentage of sales.
d) Calculate how many units would need to be sold to make £235,000 profit.
e) Use contribution per unit to calculate how much profit would be made if 8,500 units were sold.
(2 marks for each part for calculation and 2 marks for each part for comments. About 250 words, total 20 marks)
- As marketing manager for Jockuvich Ltd you have been asked to devise and evaluate a marketing campaign for a new product. You have identified two possible projects, both of which would run for four years, and now need to prepare a presentation for the board of directors. The company’s cost of capital is 8% and payback is normally required within three years.
The following figures have been identified:
Project A
Year 0
£000 Year 1
£000 Year 2
£000 Year 3
£000 Year 4
£000
Initial investment 360
Net Cash flow 180 120 80 40
Project B
Year 0
£000 Year 1
£000 Year 2
£000 Year 3
£000 Year 4
£000
Initial investment 380
Net Cash flow 200 140 60 40
REQUIRED
a) Calculate payback and net present value for each option. You should work in £000 to 2 decimal places. Make a recommendation as to which of the two options should be selected. (20 marks)
b) Evaluate the advantages and disadvantages of the investment appraisal techniques used. (About 250 words, 10 marks).
- Explain the importance and practice of working capital management (25 marks, about 500 words)
- Incremental budgeting is the best method of applying budgets. Discuss (25 marks, about 500 words).
Sample Solution