1. The selling price is calculated at a mark-up of 50% on variable cost.
2. New products introduced must contribute 15% net profit after tax.
He supplied you with the following information:
Cost per unit Other information
Leather R246.00
Silk material R350.00
Labour 3 hours @ R185.00 per hour
Overheads R155.00 per labour hour
Incremental fixed cost R625,000.00
Tax rate 28%
The sales manager estimated the market size to be 2,000 handbags for the year.
Calculate and comment if the handbag will comply with the company’s policy regarding the introduction of new products.
variable cost:
"246+350+3*185+3*155=1616"
Profit per unit:
"1616*0.5=808"
Profit before tax:
"2000*808-625000=991000"
Profit after tax:
"991000*(1-0.28)=713520"
Sales:
"(1616+808)*2000=4848000"
Profitability:
"\\frac{713520}{4848000}="0.1472=14.72%<15%
handbag will not comply with the company’s policy
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