Business代考 Contribution margin per unit = £30 – £20 = £10 Projected after-tax profit for 2021 = (£10 x 30,000 – £160,000) x (1-10%)

(a)

(i) Contribution margin per unit = £30 – £20 = £10

Projected after-tax profit for 2021 = (£10 x 30,000 – £160,000) x (1-10%)

= £140,000 x 90%

= £126,000

(ii) Break-even point in units = £160,000 / £10 = 16,000

Break-even point in sales revenue = 16,000 x £30 = £480,000

(b)

(i) Total contribution margin = 40,000 x £10

= £400,000

Total fixed costs = £160,000 + £50,000

= £210,000

After-tax profit for 2022 = (£400,000 – £210,000) x (1-10%)

= £171,000

(ii) Break-even point in units = £210,000 / £10 = 21,000

Break-even point in sales revenue = 21,000 x £30 = £630,000

(iii) Required profit before tax = £126,000 / 90%

= £140,000

Required sales unit = (£210,000 + £140,000) / £10

= 35,000

Required sales revenue = 35,000 x £30 = £1,050,000

Operating leverage measures how changes in sales can affect net income. The advertising campaign increase the fixed costs and thus the operate leverage will increase. If more units are sold, the net profit will increase by higher percentage.

#### (iv) If the sales unit = 40,000, assume the maximum amount of advertising campaign is X, then: Business代考

(£400,000 – £160,000 – X) x (1-10%) = £90,000

X=£140,000

The maximum amount can be spent on advertising campaign is £140,000.

(c)

In the service industries, fixed costs account for majority of total costs. For example, most of the costs in airline industry are fixed, the depreciation of the airplanes, the salaries of the crew members and insurance etc. The costs of transporting first passenger include such fixed costs, as well as variable cost such as the cost of food served to the passenger. The incremental costs of transporting another passenger will be the passenger level variable cost (variable cost that will change based on the number of passengers transported). Even if the fuel and oil will not be incremental cost in this case, because it’s fixed for one flight no matter how many passengers are transported.

Given that fixed costs account for majority of total costs in airline industry, the operating leverage is very high and thus they will have higher operational risk. During the pandemic, transportation around the worlds were halted and most of the airports were shut down. The ticket revenue of the airline companies plummet, but they still needed to pay for the fixed costs even if the business has been ceased for months. All the fixed costs such as airline maintenance, staff salaries will continue to incur. The high operating leverage resulted in more loss for the airline industry at the time of significant decrease in sales revenue. Business代考

If the selling prices are raised in order to increase the sales revenue, it may decrease the sales volume because the customers are reluctant to pay for higher price than they did before. The increase in sales price may not be able to compensate for the decrease in sales volume. Therefore, it’s not a feasible option.

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