Accounting

SECTION B

Z plc operates a single retail outlet selling direct to the public. Profit statements for August and September are as follows:

August September

Sales 80,000 90,000

Cost of Sales 50,000 55,000 Gross Profit 30,000 35,000

Less:

Selling and distribution 8,000 9,000

Administration 15,000 15,000

Net Profit 7,000 11,000

REQUIRED:

(a) Use the high- and low-points technique to identify the behaviour of:

(i) Cost of sales;

(ii) Selling and distribution costs; (iii) Administration costs.

[4 marks]

(b) Draw a contribution break-even chart and identify the monthly break-even sales

value and area of contribution. [10 marks]

(c) Assuming a margin of safety equal to 30 per cent of the break-even value,

calculate Z plc’s annual profit. [2 marks]

(d) Z plc is now considering to open another retail outlet selling the same products. Z plc plans to use the same profit margins in both outlets and has estimated that the specific fixed costs of the second outlet will be $100,000 per annum. Z plc also expects that 10 per cent of the annual sales from its existing outlet would transfer to this second outlet if it were to be opened. Calculate the annual value of sales required from the second outlet in order to achieve the same annual profit as previously

obtained from the single outlet. [4 marks]

[Total: 20 marks]