4. The following data relates to Year 3 of the firm Walker plc which manufactures
Product A Product B Product C
Selling Price per unit £25 £50 £48
Material Cost per unit £6 £10 £7
Labour Cost per hour £3 £2 £3
Variable Overheads per unit £4 £2 £4
Labour hours per unit 2 3 4
Machine hours per unit 3 4 10
Sales and Production (units) 8,000 5,000 3,500
Annual Fixed Costs in Year 3 are £200,000.
(i) the total machine hours worked in Year 3;
(ii) the unit contribution;
(iii) the total profit for Year 3.
In Year 4 it is estimated that the total machine hours will be reduced by 22% and the
demand for unit sales of each product will decrease by 10%.
In Year 4 annual Fixed Costs will increase by 5%.
(b) You are required to calculate for Year 4:
(i) the quantity of each product to be produced and sold to maximise profits;
(ii) the total profit for Year 4.
(c) Explain the term Equity Gearing.
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