Save:
Favorite
Share:
Calculator Allowed: Yes

Question

Answer

Transcription of this question: Dan ElectroDan Bowen is a sole trader who sells digital cameras directly to consumers. He owns an onlinebusiness and all sales are processed electronically under the business name Dan Elect,’0_ The Office,storage place and call centre are located together in an expensive and desirable city centre location.Dan started the business three years ago by borrowing a considerable amount Of money from a bank.He used his residential property as collateral* for the loan.The cameras are bought and shipped from a reputable and reliable overseas supplier who chargesa high price for good quality cameras and prompt transportation. Dan has to pay in advance forthe cameras. Dan ElectroS customers are very loyal and see their purchase as good valuefor money. Repeat purchases comprise a large percentage Of Dan Electro sales. Some customershave even indicated that they would pay a higher price for the cameras because Of their qualityand the good service he provides.Dan is now worried about the forecasted rise in interest rates, inflation and an increase inonline competition. Dan Elect,’0 may face some cash flow difficulties in the coming years. He isconsidering various strategies in order to prevent such possible cash flow difficulties.Financial information for 2010 (all figures in USS)Fixed costs r earRentMarketingAdministrationInterestents20 ooo400050001 oooVariable costs er cameraCameraTransportationDirect labourPrice per camera1354520250Dan is expected to sell 700 cameras in 2010.* collateral: the borrower’s property is offered to the lender as security if the loan is not paid back(Question I continued)(b)(c)(i)(ii)(i)(ii)(iii)(iv)Define the term variable costs.Identify two advantages for Dan Of operating as a sole trader.Construct a fully labelled break-even chart for Dan Electro for 2010.Calculate and indicate the break-even point, the margin Of safety and theprojected profit at 700 cameras (show all your working).Calculate the number Of cameras Dan must sell in order to doublethe projected profit (show all your working).Calculate the price per camera that needs to be charged (at expectedsales Of 700 cameras) in order to double the projected profit (show allyour working).Explain two possible limitations Of the break-even model as a decisiontool for DanExamine two possible strategies for Dan Electm to prevent cash flowdifficulties.[2 marks][2 marks][7 marks][2 marks][2 marks][4 marks][6 marks]

Leave a Reply