MAC3702 Assignment 2 Semester 1 Memo | Due 22 April 2026

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, PLEASE USE THIS DOCUMENT AS A GUIDE ONLY

 QUESTION 1

(a) Calculate the expected operating profit for the year ending 31 December 2025 including
theexpected operating profit from the new Nova X9. [Round off to the nearest Rand]

1. Expected Operating Profit (excluding Nova X9)
The expected operating profit, excluding the profits from the sale of Nova X9 soccer boots, is based
on the probabilities provided:

 R1,600,000 with a probability of 20%
 R1,700,000 with a probability of 30%
 R1,800,000 with a probability of 40%
 R2,000,000 with a probability of 10%

The expected operating profit for the year (excluding the Nova X9) is calculated as:

Expected Operating Profit (Excluding Nova X9) = (1,600,000×0.20) + (1,700,000×0.30) +
(1,800,000×0.40) + (2,000,000×0.10)

=320,000 + 510,000 + 720,000 + 200,000 =1,750,000

2. Expected Operating Profit from Nova X9
To calculate the expected operating profit from the new Nova X9, we need to follow these steps:

First, determine the expected quantity of Nova X9 boots to be sold:
 9,000 pairs with a probability of 30%
 12,500 pairs with a probability of 40%
 15,000 pairs with a probability of 20%
 18,500 pairs with a probability of 10%

The expected quantity of boots to be sold is:

Expected Quantity of Nova X9=(9,000×0.30)+(12,500×0.40)+(15,000×0.20)+(18,500×0.10)
=2,700+5,000+3,000+1,850=12,550 pairs

 Revenue per pair = R880

 Variable costs per pair:
 Direct material: R480
 Direct labour: R220
 Variable overhead: R55
 Total variable costs per pair = 480+220+55=R755

 Contribution margin per pair = Selling price per pair - Total variable costs per pair:

Contribution margin per pair=880−755=R125

 Fixed costs for Nova X9 = R450,000 per annum

, The expected operating profit from Nova X9 is:

Expected Operating Profit (Nova X9)=(Expected Quantity of Nova X9×Contribution margin per
pair)−Fixed costs =(12,550×125)−450,000
=1,568,750−450,000=1,118,750

3. Total Expected Operating Profit
Now, combine the expected operating profit from the existing business and the new Nova X9:

Total Expected Operating Profit=1,750,000+1,118,750=2,868,750

So, the total expected operating profit for the year ending 31 December 2025 is R2,868,750.