In: Accounting
Moon (Ltd) manufacture specially treated garden benches. The following information was extracted from the budget for the year ended 29 February 2016:
Estimated sales for the financial year 2 000 units
Selling price per garden bench R450
Variable production cost per garden bench:
- Direct material - R135
- Direct labour -R90
- Overheads -R45
Fixed production overheads R127 500
Selling and administrative expenses:
- Salary of sales manager for the year - R75000
- Sales commission-10% of sales
Required: (round off answers to the nearest rand or whole number)
3.1 Calculate the break-even quantity.
3.2 Determine the break-even value using the marginal income ratio.
3.3 Calculate the margin of safety (in Rand terms).
3.4 Determine the number of sales units required to make a profit of R150 000.
3.5 Suppose Moon (Ltd) wants to make provision for a 10% increase in fixed production costs and an increase in variable overhead costs of R15 per unit. Calculate the new break-even quantity.
Income Statement of Moon Ltd. | |||
Particulars | Quantity | Price | Amount in Rand Terms |
Sales | 2,000 | 450 | 900,000 |
Less: Variable Cost | |||
Direct Material | 2,000 | (135) | (270,000) |
Direct Labor | 2,000 | (90) | (180,000) |
Overheads | 2,000 | (45) | (90,000) |
Sales Commission(10% of sales) | 2,000 | (45) | (90,000) |
Contribution | 135 | 270,000 | |
Less: Fixed Overheads | 2,000 | (64) | (127,500) |
Less: Salary of Sales Manager | 2,000 | (38) | (75,000) |
Profit | 2,000 | 34 | 67,500 |
1. Calculation of Break Even Quantity | |||
(Total Fixed Costs/ Contribution per unit) | |||
Total Fixed Costs | 202,500 | ||
Contribution per unit | 135 | ||
Break Even (In Quantity) | 1,500 | ||
2. Calculation of Break Even Value | |||
(Total Fixed Costs/ Margin Income Ratio) | |||
Total Fixed Costs | 202,500 | ||
Margin Income Ratio | 30% | ||
Break Even (In Value) | 675,000 | ||
3. Calculation of Margin of Safety (In Rand Terms) | |||
Actual Sales | 900,000 | ||
Less: Break Even Sales | (675,000) | ||
Margin of Safety (In Rand Terms) | 225,000 | ||
4. Calculation of Sales at Desired Profits | |||
Particulars | Rand Terms | ||
Total Fixed Costs | 202,500 | ||
Desired Profits | 150,000 | ||
Desired Contribution | 352,500 | ||
Margin Income Ratio | 30% | ||
Desired Sales Value | 1,175,000 | ||
5. Calculation of New Break Even Quantity | |||
Revised Production Overheads | 140,250 | ||
Salary of Sales Manager | 75,000 | ||
Total Revised Fixed Costs | 215,250 | ||
Revised Contribution per unit(135-15) | 120 | ||
Break Even (In Quantity) | 1,794 |