ASSIGNMENT: SYSTEMS & PRICING
Due to uncertain trading conditions in 2016, Aberphones have decided to introduce two new mobile phones into their range for the following year to increase total sales. The management accountant has provided the estimated costs and revenues for the two new phones as follows:
|
Unit cost data (€)
|
Basic (€)
|
Standard (€)
|
|
Selling price
|
50
|
65
|
|
Materials
|
25
|
30
|
|
Labour
|
5
|
6
|
|
Variable overhead
|
2.50
|
4
|
|
Annual costs
|
|
Rent
|
50,000
|
|
Salaries
|
75,000
|
|
Marketing
|
25,000
|
Required:
(a) Estimate the break-even point showing clearly the number of units that will need to be sold and discuss the importance of costs in the pricing of the phone when the break-even-point is established.
(b) Calculate the profit of Aberphones if they reach their target of selling 4,500 units sold.
(c) The Sales Director has suggested that if the Standard phone is modified she could further increase the sales of this phone to 80% of the total volume. However this modification will increase the material cost by a further 7.50 per unit but the annual costs will remain the same.
Should Aberphones consider modifying the Standard phone?
(d) If you were the management accountant of Aberphones what other non-financial factors should they consider before deciding to produce these two new models?