Question
In: Accounting
Marvelly company manufactures and sells dolls. The company plans to manufacture and sell 80,000 units of...
Marvelly company manufactures and sells dolls. The company plans to manufacture and sell 80,000 units of the dolls for $4,000,000 in 2020 with the following information: The cost for each doll consists of direct material $15, direct labour $10, and variable manufacturing overhead $5. The salaries of the factory manager and supervisors are estimated at $300,000 per annum, depreciation of machinery, factory equipment, and buildings is budgeted at $250,000 per year, and the rental of factory building is $200,000 per year.
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Expert Solution
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Marvellu Company Calculation of projected operating profit or loss for 2020: |
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| Particulars | Unit | Rate/ unit | Amount | |
| Sales | 80000 | $ 50 | $ 40,00,000 | |
| Less: Variable cost- | ||||
| Direct Material Cost | $ 15 | $ 12,00,000 | ||
| Direct Labour Cost | $ 10 | $ 8,00,000 | ||
| Variable Manufactruing OH | $ 5 | $ 4,00,000 | ||
| Contribution (a) | $ 20 | $ 16,00,000 | ||
| Less: Fixed Cost- | ||||
| Salaries | $ 3,00,000 | |||
| Depreciation of assets | $ 2,50,000 | |||
| Rental of factory building | $ 2,00,000 | |||
| Total Fixed Cost (b) | $ 7,50,000 | |||
| Net Operating Profit/ Loss(-) (a-b) | $ 8,50,000 | |||
| Calculation of annual break even points in units and in sales dollar: | ||||
| Particulars | Rate/ unit | Amount | ||
| Total Fixed Cost (a) | $ 7,50,000 | |||
| Contribution (b) | $ 20 | $ 16,00,000 | ||
| Break Even Point (Units) = Total Fixed Cost/ Contribution per Unit [ a/ b] | 37,500 | |||
| Break Even Point (Sales dollar) = Total Fixed Cost/ Contribution margin [ a/ b] | $ 0.47 | |||
| Calculation of units sold annually to earn target profit after tax of $ 1,40,000: | ||||
| Note: It is assume that Total Fixed and Variable cost and sales per unit is same. | ||||
| Particulars | Unit | Rate/ unit | Amount | |
| Sales | 67,000 | $ 50 | $ 33,50,000 | |
| Less: Variable cost- | ||||
| Direct Material Cost | $ 18 | $ 12,00,000 | ||
| Direct Labour Cost | $ 12 | $ 8,00,000 | ||
| Variable Manufactruing OH | $ 6 | $ 4,00,000 | ||
| Contribution (a) | $ 14 | $ 9,50,000 | ||
| Less: Fixed Cost- | ||||
| Salaries | $ 3,00,000 | |||
| Depreciation of assets | $ 2,50,000 | |||
| Rental of factory building | $ 2,00,000 | |||
| Total Fixed Cost (b) | $ 7,50,000 | |||
| Net Operating Profit/ Loss(-) before tax (a-b) | $ 2,00,000 | |||
| Less: Tax @ 30% | $ 60,000 | |||
| Net Operating Profit/ Loss(-) after tax | $ 1,40,000 | |||
| Answer: 67,000 Units sold annually to earn target profit after tax of $ 1,40,000. | ||||
| Calculation of increase of operation profit due to sale increased by $50,000: | ||||
| Particulars | Unit | Rate/ unit | Amount | |
| Sales | 80000 | $ 51 | $ 40,50,000 | |
| Less: Variable cost- | ||||
| Direct Material Cost | $ 15 | $ 12,00,000 | ||
| Direct Labour Cost | $ 10 | $ 8,00,000 | ||
| Variable Manufactruing OH | $ 5 | $ 4,00,000 | ||
| Contribution (a) | $ 21 | $ 16,50,000 | ||
| Less: Fixed Cost- | ||||
| Salaries | $ 3,00,000 | |||
| Depreciation of assets | $ 2,50,000 | |||
| Rental of factory building | $ 2,00,000 | |||
| Total Fixed Cost (b) | $ 7,50,000 | |||
| Net Operating Profit/ Loss(-) (a- b) | $ 9,00,000 | |||
| $50,000 increased in operation profit due to no change in cost. | ||||
| Calculation of advertisement expense to earn a target operation profit before tax $ 9,00,000: | ||||
| Particulars | Unit | Rate/ unit | Amount | |
| Sales | 80000 | $ 50 | $ 40,00,000 | |
| Add: Increase annual sales by 50% | 40000 | $ 50 | $ 20,00,000 | |
| Total Sales (a) | 120000 | $ 50 | $ 60,00,000 | |
| Less: Variable cost- | ||||
| Direct Material Cost |
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