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Hi.
Can you please explain how was calculated the net contribution per unit of 51.9 from answer of point (ii)? Also, can you please explain the results from point (iv) – with new factory – ? How have been these calculated?
Thank you a lot.
(ii) .
Old contribution/unit = 75 – 21 = 54
New contribution/unit = 75 – 21 x 1.1 = 51.9
(iv)
The key is the phrase “using 2015 figures as a base, do sales with the new factory will be the same as with the old.
You are told in the question to assume that the operating profit from the new factory is $103m before interest and tax. However, that is not the operating profit of the whole company: it is just from the new factory. Existing shoes manufacturing creates a contribution of (75 – 21)x 2m = 108,000,000. This then becomes 103,000,000 a fall of 5m and this is used to reduce the company’s operating profit from 71 to 66
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