Budget Mowing manufactures a low cost ride-on lawnmower for the Australian market, the Quickmow. Current...
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Budget Mowing manufactures a low cost ride-on lawnmower for the Australian market, the Quickmow. Current annual sales are 600 mowers and they sell for $1,000 each. Staff salaries are $101,000 per annum and the manufacturing shed rental and other overheads such as air conditioning are $19,000 per annum. On average parts for a mower cost $500 and other variable costs of manufacture are $100 per mower.
Required:
1. What is the contribution margin per mower sold?
2. How many mowers need to be sold per year to break-even?
3. Given current annual sales, what would the annual profit/loss be?
4. Draw a Cost-Volume-Profit graph showing total revenue and total costs, fixed costs, profit and loss areas, and clearly showing the break-even point in units and dollar revenue.
5. The owner of Budget Mowing is considering spending $20,000 on an advertising campaign for the year which it is expected will increase sales by 55 mowers. Is the additional spending worthwhile (show calculations to support your answer)?
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