Derek Lowe decided to commence as a manufacturer making a single product. As a matter of business policy he set the following conditions for his firsttwo yearsof operations: Year 1 To at least brake-even,but also if possible to achieve a return on his capital employed at 5% per annum.
Year 2 Through increase efficiency to lower the break-even point and to achieve a return on his capital employ at 15% per annum.His forecast net capital employed is: £Year I 100,000Year II 500,000
Additional Information:(1) His projected cost per unit produced are:
Year I Year II £ £Direct Materials 10 11Direct Labour 8 7Variable prod. overheads 5 4.5Variable sales overhead 4 3.5
(2) He expected that his fixed costs would remain constant throughout the two years at£60,000 per annum
(3)His Forecast sales are: Price per unit Unit Volume £ 000sYear I 34 10Year II 36 13
(4) It can be ssumed that all expense and revenue relationships will be unvhaged expect where identified(5) All Output Produced will be sold
Required(a)A detailed profit and loss statement showing his projected profit for year I (4marks)
(b) A calculation of the number of sales units necessary to break-even for each year (4marks)
(c)A graph showing break-even charts for each year. Indicate the break-even points on the graph (7marks)
(d) A calculation of the number of sales unites necessary to acheive the target return on capital employed for each of the first two years of operation (7marks)
(e) If lowe decided to aim to maintain his Year II target return on capital employed at an output of 14,000 units, what is the minimum selling price he should charge (3marks)
Total (25 marks)i need help with these questions
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