Question
The Borneo Shop imports and sells a popular Blue Ray DVD player. The following current information about the business is available:
Selling price per player $600
Purchase price of each player $400
Sales commission per player $50
Delivery costs per player $10
Rent $10 400 per year
Manager's salary $72 000 per year
Insurance $1 600 per year
Required
a. Calculate the number of players the business must sell in a year to break-even.
b. The business expects to sell 1 800 players in the next year. Assuming the selling price per unit and the cost structure of the business remain as they are at present, determine the expected profit of the business for the coming year.
c. The manager is not happy with the projected profit figure. She believes that if the selling price is reduced to $560 per player, $16 000 is spent on advertising during the year, and the sales commission is increased by $10 per player, then the number of players sold will be 2 600. With supporting calculations, explain whether the manager's plan should be adopted.
d. The business has the option of paying the manager $36 for every player sold rather than her existing salary. At the activity level planned in b. above, should the company proceed with this alternative?
e. Describe how a manager might practically apply cost volume profit analysis in a private or public sector organisation?