Question

In: Accounting

Question (June 2015) Zack Company developed the following information for its product: RM/unit Sales price 60...

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. ,

Solutions

Expert Solution

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

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