Question

In: Finance

ABC Sdn Bhd’s profit plan for the year of 2019 is summarized below: Items                   RM...

ABC Sdn Bhd’s profit plan for the year of 2019 is summarized below:

Items

                  RM

RM

Sales (20,000 units)

1,000,000

Manufacturing costs:

    Material

85,000

    Labour

80,000

    Fixed overhead

132,500

    Variable overhead

202,500

Distribution costs:

    Fixed

170,000

    Variable

95,000

Administration costs:

    Fixed

87,500

    Variable

17,500

Total costs

870,000

Profit before tax

130,000

Determine the following:

(i) Compute the variable cost ratio and the P/V (contribution margin) ratio.

(ii) What is the breakeven point in RM? In units?

(iii) Calculate margin of safety in RM & %.

(iv) Assume that the management is considering revising the sales price downward by 10%. The price decrease is expected to bring about a 20% increase in sales volume.

  • Is the revised price a better alternative? (show calculation).
  • What is the new breakeven point in units & in RM ?
  • What is the new margin of safety in RM & in % ?

Solutions

Expert Solution

i. variable cost ratio= variable cost/Net sales= material + labour + variable overhead/ net sales *100

= 85000+ 80000+202500/1000000*100= 36.75%

.P/V ratio= contribution/sales*100= sales-variable cost/sale*100= 632500/1000000*100= 63.25%

ii. Break even point in units and value= In value- fixed cost/p/v ratio= 132500/63.25%= 209486

in units= total units=20000= fixed cost/contribution per unit= 132500/31.625= 4190 units (Approx)

iii. Margin of safety in value and %= in value= current sales - Break even sales=1000000-209486= 790514

in % = (current sales -break even sales)/current sales*100= (1000000-209486)/1000000*100= 79.05%

iv. sales price reduced by 10 resulting in 20 % increase in volume- current sales price=50 reduced price=45

no of units = 200000 increased units = 20000*1.2=24000 total sales= 45*24000= 1080000

   variable cost= 396900

contribution 683100

fixed overheads 132500

pv ratio = 63.25 % there is no  change in pv ratio .

new break even point in value= fixed overhead/c

ontribution %= 132500/63.25% =209486

in units= 132500/28.4625= 4655 units(approx)

new margin of safety in value=  1080000-209486= 856031 in %= 1080000-209486/1080000*100= 80.60%

jeff jeffy answered 2 years ago
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