Question

Management Accounting question

Auto Robot Ltd which manufactures two products P & Q has provided the following information.
P (shs) Q (shs) Selling price per unit 10 12
Variable cost per unit 2 8
Fixed cost 50,000 34,000
Required:-
i) Calculate the B. E. P. of each product in units and in shs.
ii) Calculate the margin of safety if budgeted sales are 10,000 units each
iii) Compute the profit of each product if sales in units are 20% above the B. E. P.

Answer 1

Solution

i)	Calculation of B. E. P. of each product in units and in shs.
		P	Q
	Selling Price per Unit	10	12
	Variable Cost Per Unit	2	8
	Contribution Per Unit	8	4
	Fixed Cost	50000	34000
	Break Even Unit	6250	8500
		=50000/8	=34000/4
	Break Even Unit(in Shs)	62500	102000
		=6250*10	=8500*12
ii)	Calculation of margin of safety if budgeted sales are 10,000 units each
		P	Q
	Units	10000	10000
	Break Even Unit	6250	8500
	Margin of safety Units	3750	1500
		=10000-6250	=10000-8500
	Margin of safety in shs	37500	18000
		=3750*10	=1500*12
iii)	Computation of profit of each product if sales in units are 20% above the B. E. P.
		P	Q
	Break Even Unit	6250	8500
	Sale Unit	7500	10200
		=6250*1.20	=8500*1.20
	Contribution (a)	60000	40800
		=7500*8	=10200*4
	Fixed Cost (b)	50000	34000
	Profit in shs(a-b)	10000	6800