T plc outline solution

a. Original Budgeted Income Statement m

Tplc
A
B
C
Sales
100 40
30 30
TVC
65
30 15 20
Contribution
35
10
15 10
TFC
20
Profit
15
Proposed Income Statement m
Tplc
A
B
C
Sales
100
20
50 30
TVC
60
15 25 20
Contribution
40
5
25 10
TFC
20
Profit
20

Break-even point formula:

TFC * Sales
Contribution
Original = 20 * 100 = 57.143m (sales value)
35
Proposal = 20 * 100 = 50m (sales value)
40

Margin of Safety formula:

Actual Sales Sales @ B.E.P.
Original = 100 57.143 = 42.857m (sales value)
Proposal = 100 50 = 50m (sales value)
Contribution to sales ratio formula:
Contribution * 100
Sales
Original = 35 * 100 = 35%
100
Proposal = 40 * 100 = 40%
100
b. Yes, accept Marketing Directors proposal:
higher contribution and profit
lower break even point
higher margin of safety
higher contribution to sales ratio
So, overall: higher profit and profitability with lower risk.
c. Non-financial factors:
on-going demand from customers
no reaction from customers to reduction in Product A
availability of supplies, production capacity and abilities, channels of
distribution.