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ZCOMPANY has budgeted that output and sales of his single product will be 100000 units...

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Accounting

ZCOMPANY has budgeted that output and sales of his single product will be 100000 units in the coming year. At this level of activity, his unit variable costs are budgeted at Sh.50 and his unit fixed costs at Sh.25 His sales manager estimates that the demand for the product would increases by 1000 units for every decreased of Sh.1 in unit selling price (and vice versa) and that at a unit selling price of Sh.200 demand would be nil.
Information about two price increases has just been received from suppliers: one is for materials (which are included in Alvis Kiptoos variable costs) and one is for fuel (which included in his fixed costs). Their effect will be to increase both the variable and fixed costs by 20% each over the budgeted figures.
1. Calculate the cost contribution and profit at the budgeted levels of 100000 units.
2. Calculate the level of sales at which profits would be maximized and the amounts of these maximum profits before the cost increases.
3. Show whether and by how much ZCOMPANY should adjust his selling price in respect to increases in:
- Fuel costs
- Material costs

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