This business/management problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
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Here's the solution to question 8.b): Given: Expected Sales = 2,000 units Selling Price per unit = Le 25 Variable Cost per unit = Le 15 Fixed Costs = Le 10,000 i) Prepare a budgeted Income Statement. Step 1: Calculate Total Sales Revenue. Total Sales Revenue = Expected Sales Units × Selling Price per unit Total Sales Revenue = 2,000 units × Le 25/unit = Le 50,000 Step 2: Calculate Total Variable Costs. Total Variable Costs = Expected Sales Units × Variable Cost per unit Total Variable Costs = 2,000 units × Le 15/unit = Le 30,000 Step 3: Prepare the Budgeted Income Statement. Budgeted Income Statement l r Sales Revenue & Le 50,000 \\ Less: Variable Costs & Le 30,000 \\ Contribution Margin & Le 20,000 \\ Less: Fixed Costs & Le 10,000 \\ Net Income (Profit) & Le 10,000 \\ ii) What is the break-even Sales Value? Step 1: Calculate the Contribution Margin per unit. Contribution Margin per unit = Selling Price per unit - Variable Cost per unit Contribution Margin per unit = Le 25 - Le 15 = Le 10/unit Step 2: Calculate the Contribution Margin Ratio. Contribution Margin Ratio = Contribution Margin per unitSelling Price per unit Contribution Margin Ratio = Le 10Le 25 = 0.40 or 40\% Step 3: Calculate the Break-even Sales Value. Break-even Sales Value = Fixed CostsContribution Margin Ratio Break-even Sales Value = Le 10,0000.40 = Le 25,000 iii) Calculate the Margin of Safety. Step 1: Identify Actual Sales Value and Break-even Sales Value. Actual Sales Value (from part i) = Le 50,000 Break-even Sales Value (from part ii) = Le 25,000 Step 2: Calculate the Margin of Safety. Margin of Safety = Actual Sales Value - Break-even Sales Value Margin of Safety = Le 50,000 - Le 25,000 = Le 25,000 iv) Identify and explain the importance of budgeting in planning. 1. Provides Direction and Coordination: Budgeting sets clear financial goals and targets for the organization, acting as a roadmap. It helps to coordinate the activities of various departments, ensuring that all efforts are aligned towards achieving the overall strategic objectives. 2. Facilitates Performance Evaluation: Budgets serve as a benchmark against which actual financial performance can be measured. By comparing actual results to budgeted figures, management can identify variances, analyze their causes, and take corrective actions to improve efficiency and effectiveness. Drop the next question.