Question

In: Accounting

The HASF Ink Ltd income statement for the preceding year is presented below except as noted the cost/revenue relationship

The HASF Ink Ltd income statement for the preceding year is presented below except as noted the cost/revenue relationship for the coming year is expected to follow the same pattern as in the prior year income statement for the year ending March 31 is as follows s 

 

Sales (200,000 units @ 2.5 Each)  Rs. 5, 00,000 

Variable cost        3, 00,000

Contribution margin         2, 00,000

Less Fixed cost         100,000

Profit before tax        100,000 

Less tax          35,000 

Profit after tax           65,000

 

Required

 

 

The company management feels that it should earn at least Rs.10, 000 pre taxes per annum on the new investment what sales volume is required to enable the company to maintain existing profit.

Solutions

Expert Solution

Contribution margin per unit = Contribution margin / No. of units  

= Rs. 200,000 / 200,000 units

= Rs. 1 per unit

No. of sales units need to sale =(Target profit + Fixed costs) / Contribution margin per unit

= (Rs. 10,000 + Rs. 100,000) / Rs. 1 per unit

= 110,000 units

Sales required to attain target profit = No. of sales units need to sale  x sales price per unit

= 110,000 units x Rs. 2.5 per unit

= Rs. 275,000

 

 

DEEPIKA GOYAL answered 1 year ago
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