3.2 3.2.1 3.2.2 REQUIRED Answer the following questions from the information pro

Question

3.2 3.2.1 3.2.2 REQUIRED Answer the following questions from the information provided below: What price does Scorpio Ltd have to charge for each unit of the product to break even, if all 50 000 units produced are sold? If Scorpio Ltd decides on a selling price of R100 and has a profit objective of R200 000, what sales volume is required? INFORMATION Scorpio Ltd expects to incur the following costs to produce and sell 50 000 units of its product: Variable costs per unit R60 R280 000 Total fixed costs QUESTION 4 REQUIRED Prepare the Cash Budget of Rey's Manufacturers for August Sentemher and octoher 0 (20) Noto

Explanation / Answer

3.2.1) Let the price be X per unit.

Calculation of cost:

Selling price for 50000 units= 50000X

Less: Variable cost(60*50000)= 3,000,000

Contribution - = (50000X-3000000)

Less: Fixed cost= 280000

Now, in order to be break-even :

Fixed cost/ Contribution per unit= 280000/(50000X-3000000)

By solving,

280000/(50000X-3000000)= 1

or, 50000X-3000000=280000

or, 50000X= 3280000

or, X= 65.60

Ans: Scorpio Ltd. shoould have to charge 65.60 per unit in order to break even.

3.2.2) Let the sales volume be Y units.

Selling price= 100Y

Less: Variable cost= 60Y

Contribution= 40Y

Less: Fixed cost= 280000

Profit= (40Y-280000)  

By formula we have:

40Y-280000=200000

or, 40Y= 480000

or, Y= 120000

Ans: 120000 units should be sold to obtain a profit of 200000.

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