accounting for decision making

timer Asked: Mar 1st, 2016

Question description

Calculate the expected operating profit or loss of each proposal. (8)


The following budgeted information for the year ended 30 June 2016 is provided by Lazer Ltd, a manufacturer of a single product: Sales (R30 per unit)

R2 400 000

Total variable costs

(R1 440 000)

Total fixed costs

(R800 000)

Operating profit

R160 000

The sales manager suggests two proposals to improve the expected operating profit:

 Proposal A involves launching an improved marketing campaign. This would involve an additional R180000 outlay for advertising. Sales commission will increase by R2 per unit. Sales are expected to increase by 25% above the budgeted sales volume, with no change in the unit selling price.

 Proposal B involves a 10% reduction in the unit selling price. Fixed selling overheads will reduce by R120000. The sales volume is expected to increase by 8 000 units.

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