Rothko Ltd produces a single product for distribution to wholesalers. The product has a selling price of GH¢10 per unit. Variable costs of production are GH¢5 per unit, and fixed
Rothko Ltd produces a single product for distribution to wholesalers. The product has a selling price of GH¢10 per unit. Variable costs of production are GH¢5 per unit, and fixed costs of production are GH¢50,000 per annum. The distribution of the product results in additional costs of GH¢1 per unit (variable) and GH¢11,500 per annum (fixed) 1. Calculate the expected break-even quantity and revenue. 2. Assuming Rothko Ltd predicts sales of GH¢200,000 for the year, calculate the expected profit (assuming sales and production are equal). 3. The company does have some idea about the effects on demand of changes in prices, advertising, competitors’ action, e Assume that a 5% decrease in price will increase total volume by 15% (in units); that an additional expenditure of GH¢7,500 on advertising will further increase the original volume by 5%, but that the increased production will result in an increase in variable costs of production by GH¢0.1 per unit in excess of 21,000 unit. Maximum practical capacity is 25,000 units. effect will these changes have on net profit? 4. As an alternative, Rothko Ltd can also expand its sales volume by 20% by offering its wholesalers a rebate of 1% on all the units they purchase, and by incurring advertising expenditure of GH¢20,0 5. Is this a better alternative than (3)? Support your reasoning with calculations.
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