It is a business economics case to solve with explanation and showing the method
Sales price (excl. VAT)
c. Calculate gross margin and profit or loss if stated.
The company estimates that a price reduction of 10% will lead to a volume increase of 20%. (Based on
the original information.)
A company produces only one product. We know the following numbers from the calculation:
b. Calculate zero point turnover.
h. Would you recommend the company to make this investment? Justify the answer.
Would you recommend the company to make this price reduction if this does not require an increase in
e. Draw a coverage chart and mark zero point turnover and calculated safety margin.
Variable unit cost
d. What is the safety margin (risk margin) as a percentage of this turnover?
The company’s fixed costs amount to NOK 1,275,000 per year.
costs. What does this tell us?
Variable unit cost is assumed to be proportional.
f. Calculate the sensitivity to changes in price, quantity, variable unit costs and fixed
(You can make a diagram in Excel, or draw on paper and take a picture / paste it into the answer sheet.)
the fixed costs. Justify the answer.
a. Calculate coverage.
g. Calculate coverage ratio, zero point turnover, safety margin and profit.
The company is considering making an investment in machinery to reduce variable costs. This will increase the
fixed costs by NOK 150,000 per year. Variable unit cost will then be reduced to NOK 48.
The company expects a turnover (total income) of NOK 4,050,000 per year.
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