Question

(15 marks) Question 2 The sales manager of your company wants to ntroduce a new leather hardbag in the markot He approaches you to assust hem in calcuating the seling pnce as wol as the number of handbags to sel to break-even He provides you with the following nformation 2 melers per handbag Leather being mported at the cost of R9,200 per 150m rol Cutting and SMchng 3 hours per handbag Labour rate s R75,00 per hour of matenal R9,500 per month Supervisor salary R1200 per load of 4 roils of leather mpon cos R1,500 per load A load conaists of 16 handbags Deivery cost Accountant Salary 8,500 per month A5.000 per month Rent is being allocatod accordng to foor spaco Rent 78% of the noorspac isccupied by the producbon dopartment R10,500 per month Tha company hes 2 (two) sowing machinos at the cost of R8,560 per machine Depreciahon s calculated at 20% per annum on ta straght-ine method Additional notes The company is a pnce setter and seling pnce s calculated as mark-up d 150% on vanable " cost per unt Tax rale 30% Regulred: Calculate the seling pnce per handbag 2 Calculate the break-even (uin number) of handbags to be sold Calculate the number of handbags to be sold if the company wants to eam a prote after tax of 1 10% of the total sales TURN OVER]

Answer 1

1. Selling price per Handbag = R 1113.54

Variable cost
Leather	122.67
Labour	225.00
Import cost	4.00
Delivery Cost	93.75
Total Variable cost	445.42
Markup (150%)	668.12
Selling Price	1,113.54

2. Break even point = 607 handbags

Supervisor Salary	=9500*12	114000
Accountant salary	=8500*12	102000
Rent	=5000*12	60000
Administration cost	=10500*12	126000
Depreciation	=(8560*2)*20%	3424
Total Fixed Cost		405424

Contribution per unit = Selling price - variable cost per unit = 1113.54-445.42 = R 668.12

Break even point (in units) = Total Fixed Cost / Contribution per unit = 405424/668.12 = 607 units

3. 797 handbags

Let number of handbags sold be x

Total sales = 1113.54 x

Required profit after tax (10% on total sales ) = 111.354 x

Profit before tax (111.354 x/70%) = 159.07 x

Profit before tax = Sales -variable cost - fixed cost

159.07 x = 1113.54 x - 445.42 x - 405424

x = 797 handbags