Question 2.
Shona, a sole trader, owns and manages a business which manufactures and sells small instruments for hospitals and other medical facilities.
Set out below is the sales revenue and profit for 2019.
Year Sales Profit
2019 £431,640 £147,390
In 2019 the business manufactured and sold 132,000 units and had fixed costs of £147,000. All other costs were variable.
a.Calculate the selling price and variable cost per unit for 2019.
b.Calculate the sales revenue level, both in units and money terms, at which the business broke even in 2019.
c.Complete a contribution analysis table that indicates fixed, variable and total costs, as well as revenue, for 2019 at production levels of 0, 100,000, 200,000 and 300,000 units.
d.Illustrate your answers to (a), (b) and (c) above on a breakeven chart that shows revenue, total cost and fixed cost lines with an appropriate legend for each. Your chart should be labelled with an arrow that points to the breakeven point as well as to the margin of safety area.
e.Shona had considered spending an additional £12,000 on marketing in 2019. She predicted that such an additional investment would have increased the sales and production volume in the year to 144,000 units at a better selling price of £3.85. She also predicted there would have been no other changes to her fixed costs for the year nor any changes to the variable cost per unit.
i.If her predictions had proved correct, what would have been her new profit for the year?
ii.If her predictions had proved correct, what would have been her new breakeven point, in units, for the year?
Question 3.
(Your total answer to Question 3 should be less than 800 words.)
a.Briefly discuss the essential differences for a business between short-term, day-to-day decisions, and long-term, year-to-year ones.
b.What is the ‘controllability principle’? Using your own words and your own example, briefly discuss the difficulty of applying such a principle in practice.
c.Describe six purposes for preparing budgets for organisations. For each of these purposes, give an example of how they might be relevant in an organisation you are familiar with.
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