In: Accounting
Question (June 2015)
Zack Company developed the following information for its product:
RM/unit |
|
Sales price |
60 |
Variable cost: |
|
Direct material cost |
12 |
Direct labor cost |
8 |
Variable factory overhead |
10 |
Variable selling expenses |
5 |
Total fixed factory overhead |
150,000 |
Total fixed selling and admin expenses |
80,000 |
Units sold |
12,000 units |
Required:
(a) Calculate variable cost per unit and total fixed expenses.
(b) Calculate the operating profit for Zack Company using contribution margin income statement.
(c) Calculate the breakeven unit and check your answer by preparing a contribution margin income statement based on the breakeven units.
(d) How much sales must be generated for the company to earn a profit of RM300,000 ?
(e) If the company plans to hire sales promoter and pay a commission of RM5 for every unit sold, how many additional units must be sold to earn the same operating income it is now making? Check your answer by preparing a conteibution margin income statementbased on the new quantity. ,
Solution a :- Variable cost per unit = Direct material cost + Direct labour+ variable factory overheads+ variable selling overhead
= 12 + 8 + 10 + 5= 35 RM
Total fixed expenses= Total Fixed factor overhead+ total fixed selling and administration expenses
= 150000 RM+ 80000 RM= 230000 RM
B):-
Contribution margin income statement
Discription | Amount RM |
Sales ( $ 60 X 12000 units) | 720000 |
Less : variable cost ( $ 35 X 12000 units) | 420000 |
Contribution margin | 300000 |
Less :- Total Fixed cost | 230000 |
Operating income | 70000 |
C):- Break even units = total fixed cost / contribution margin per unit
= 230000 R M/ ( RM 60 - RM 35)= 9200 units
Contribution margin income Statement
Discription | Amount RM |
Sales ( 60 RM X 9200 units) | 552000 |
Less : variable cost ( 35 RM X 9200 units) | 322000 |
Contribution margin | 230000 |
Less :- Total Fixed cost | 230000 |
Operating income | 0 |
Break even is point where operation income become zero . Hence proved.
D) :- Required sale in unit = Fixed cost + Desired profit / Contribution per unit
= 230000 RM + 300000 RM / ( 60 - 35) RM
= 530000 RM / 25 RM = 21200 units
Required sales = 21200 units X 60 RM = 1272000 RM.
E):- New variable cost per unit = 35 + 5 ( sales commission) RM= 40 RM
New Contribution= 60 RM - 40 RM = 20RM
Required unit of sales= Fixed cost + old operating profit / Contribution per unit
= 230000+ 70000/ 20 = 15000 units
Contribution margin income Statement
Discription | Amount $ |
Sales ( RM 60 X 15000 units) | 900000 |
Less : variable cost ( RM 40 X 15000 units) |
600000 |
Contribution margin | RM 300000 |
Less :- Total Fixed cost | 230000 |
Operating income | RM 70000 |