When the Kafue Plastic Company’s plant is completely idle, fixed costs amount to K720,000. When the plant operates at levels of 50% of capacity or less, its fixed costs are K840,000; at levels more than 50% of capacity, its fixed costs are K1,200,000. The company’s variable costs at full capacity (100,000 units) amount to K1,800,000.
i. Assuming that the company’s product sells for K60 per unit and using cell referencing calculate the company’s break-even point in sales kwacha? (3 marks)
ii. Using only the data provided and the Goal Seek under What-If-Analysis, at what level of sales would it be more economical to close the factory than to operate it? In other words, at what level would operating losses approximate the losses incurred if the factory closed down completely? (2 marks)
iii. Assume that Kafue Plastic Company is operating at 50% of its capacity and decides to reduce the selling price from K60 per unit to K36 per unit to increase sales. Using the Goal Seek under What-If-Analysis, determine the percentage of capacity must the company operate to break even at the reduced sales price. In addition, using the Dashboard Modelling, absolute and relative referencing that calculates the Total Income, Total Expenditure and the Profit that you will realize. (4 marks)
iv. Using a Two-Variable Data Table, show the matrix for the Profit for a range of unit price between K40 and K65 and when the company is operating of between 30% and 60%. (2 marks)
v. Create a Scenario Summary Report showing the resulting Total Income, Total Expenditure and Profit given the following three scenarios in Table 6. (3 marks)
Minimum Base Maximum
Unit Price 36 46 60
Operating Percentage 40% 50% 60%
Table 1: Scenarios