In: Accounting
Y enterprises sells is product at Rs. 20 per unit.
Variable costs are Pa 15 per st (2/3
manufacturing and 1/3non manufacturing). Fxed costs are incurred
uniformly throughout the year and amount to Rs.750,000 (2/3
mamufacturing and 1/3 non-mammfactaring
Required:
a) The number of units that must be sold to carn an after-tax
income of Ra. 100,000
assume income tax rate of 20%). Prove your answer by prepaning
imcome
statement to that effect
b) Illustrate the role of changes in fiscal policies (changes in
tax ates) and labor
unions (changes in structure of salaries and wages) in altering the
break-even
point calculated in (a). Your answver must be supported by
calculations based an
arbitrarily assumed values
1.
After Tax Profit | 100,000 |
Before tax profit (100,000*100/80) | 125,000 |
Add: Fixed costs | 750,000 |
Reuqired Contribution | 875,000 |
Contirbtuion per unit => 20 - 15 = 5 Rs per unit.
So, Units required to be produced => 875,000/5 = 175,000 units.
Income Statement:
Sales (175000) | 3500,000 |
Less: Variable Costs | |
Manufacturing Costs (15*2/3*175000) | 1750,000 |
Non-manufacturing | 875,000 |
Contirbution | 875,000 |
Less: Fixed Costs | |
Manufacturing (750,000*2/3) | 500,000 |
Non-manufacturing | 250,000 |
Income before taxes | 125,000 |
Less: Taxes @ 20% | 25000 |
Income after twax | 100,000 |
B.
Required Income | 100,000 | 100,000 |
Income after tax | 100,000/.75 = 133,333 | 100,000/0.85 = 117,647 |
Fixed Cost | 750,000 | 750,000 |
Contribution | 883,333 | 867,647 |
Contribution per unit | 5 | 5 |
Units to the sold | 176,667 | 173,529 |
Profit before taxes | 125,000 | 125,000 |
Fixed costs (750,000+/-500,000*10%) | 800,000 | 700,000 |
Contribution | 925,000 | 825,000 |
Contirbtuion per unit | (20-(15+1)=4 | 20-(15-1)= 6 |
Units to be sold | 925000/4 = 231250 | 137,500 |