Determine the overall break-even point in sales value for the company

Determine the overall break-even point in sales value for the company

Project

2018/2019

Due Date: November 25st 2018

Group Project: 15%

Company Information:

Imperial Woodworking Ltd manufacture specialist wood furniture and sell their products all over Saudi Arabia. The company was established three years ago in Jeddah and is performing well to date. Imperial woodworking Ltd have three main product lines; TV tables, dining table and chairs. The following financial information has been provided.

Wood Work Ltd manufacture specialist wood furniture and sell their products all over Saudi Arabia. The company was established three years ago in Jeddah and is performing well to date. Wood work Ltd have three main product lines; TV tables, dining table and chairs. The following financial information has been provided.

Financial Information:

TV tables

dining Tables

Chairs

Selling Price per unit

SAR 1,000

SAR 5,000

SAR 700

Direct Materials cost per 1 Kg of wood timber

SAR 50

SAR 50

SAR 50

Kg of wood timber required per unit

10

35

5

Direct Labour hour cost

SAR 30

SAR 30

SAR 30

Sales commission per item sold

SAR 10

SAR 15

SAR 5

Variable manufacturing overhead per unit

SAR 20

SAR 24

SAR 18

Number of labour hours per unit

3

4

2

Budgeted sales in units

300

200

450

Additional Information:

a) Other costs:

Production manager annual salary SAR 60,000

Annual marketing costs SAR 10,000- related to TV tables

General Expenses SAR 5,000

Annual Fixed manufacturing overhead (excluding depreciation) SAR10,000 (20% relates to TV tables)

b) Annual equipment depreciation SAR 10,000

c) The company had 8 TV tables and 100 kg of wood timber in stock at the end of September.

d) Company policy is to maintain 20% of the following months sales level as closing inventory for finished goods.

e) Company policy to maintain 25% of next months’ production needs as closing inventory for direct materials.

f) Budgeted sales of TV tables for the next six months are as follows:

October

November

December

January

February

40

35

20

20

20

g) Cash collections on sales are as follows:

30% in the month of sale

70% in the month following sale

Receivables at the end of September were SAR 22,000

h) Cash payments on purchases are as follows:

60% in the month of purchase

40% in the following month

Payables at the end of September were SAR 6,000

i) The closing cash balance in September 2018 was SAR 40,000 and it is company policy to maintain cash at this level at the end of each month.

j) The company have access to a 4% bank loan of SAR 70,000

k) The company paid a dividend of SAR 40,000 in November

l) Cash of SAR 50,000 was invested in the company by a private investor in December.

Requirements:

Your group has been employed as the management accountants for Imperial Woodworking Ltd and have been asked to prepare a report to the board of directors outlining the following:

a) Using the information above, calculate the following: (45%)

i. Which product is performing the best?

ii. Calculate the overall break-even point in sales value for the company

iii. If the selling price of TV tables is increased to SAR 1,200 per unit, what would be the new overall profit?

iv. Refer to original data, what level of sales must the company achieve to make a profit of SAR 1,500,000?

v. The company is considering eliminating sales commission and increasing salaries by SAR40,000. Outline the implications of making this decision on the overall break-even point in sales value and the overall profit or loss for the company. Should the company proceed with this decision?

b) Using the information above, prepare the master budget for TV tables only for the quarter ending 31th December 2018. (55%)

· You are required to prepare the master budget for TV tables only, hence any costs that are shared with the other products should be ignored.

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