With the above data the new break even point can be computed Break even point

With the above data, the new break- even point can be computed: Break-even point in dollar = Fixed costs CM ratio = $240,000 25% = $960,000.00 I do not agree with the marketing manager’s proposal because this strategy is extremely risky. The present level of sales is just $800,000.000, which is lower than the break- even point ($960,000.00) under the new marketing method. Thus, if the new marketing strategy is adopted and sales remain unchanged, profits will losses. Therefore, I do not agree to apply this strategy. Task 2: Dropping or Retaining a Product 1. The most difficult decision of a manager has to make that is drop or add one product or segment into product lines of the company. Any decisions like this are impacted by MBAOUM0314 Pham Thi Hong Cuc Page 3

ASSIGNMENT – BMAC5203 Net operating income. Therefore, we should analyze carefully all costs of the product before go to make decisions. Firstly, the relevant costs impact to decision to drop the Model C3 lawnchair product that is avoidable costs. The voidable costs are: Direct materials ...................................................................... R 120,000.00 Direct labor .................................................................................... 72,000.00 Fringe benefits (20% of direct labor) ............................................. 14,400.00 Variable manufacturing overhead ................................................... 3,600.00 Product manager’s salary ............................................................. 10,000.00 Sales commissions (5% of sales) ................................................. 15,000.00 Fringe benefits (20% of salaries and commissions) ....................... 5,000.00 Shipping ........................................................................................ 10,000.00 Total avoidable cost ................................................................. R 252,000.00 The secondly, we can make the computation about overall net operating income if the Model C3 lawnchair is dropped : Sales revenue lost if the Model C3 is dropped ................ R (300,000.00) Less: Costs that can be avoided ............................................ 252,000.00 Decrease in overall company net operating income ......... R (48,000.00) In this case, the overall company net operating income is loss more than before dropped Model C3 lawnchair. Therefore, the company should not drop Model C3 lawnchair unless the company can find more profitable uses for the resources of Model C3 lawnchair. MBAOUM0314 Pham Thi Hong Cuc Page 4