Question

Anas Company engaged in manufacturing plastic products is working at 60% capacity and produces 5,400 units per month.

The present cost breaks up for one unit is as under:

Material SR 8; Labor- SR 2; Overhead-SR 6 (25% fixed)

The selling price is SR 25 per unit.  If it is desired to work the company at 70% capacity the selling price falls by 4%. At 80% capacity the selling price increase by 2%.

You are required to prepare a statement showing the profit at 60%, 70% and 80% capacity.

Answer 1

Answer:

Capacity	60%	70%	80%
selling price                A	25	24	25.5
Less: Variable cost     B
Material	8	8	8
Labor	2	2	2
Variable Overhead (6*75%)	4.5	4.5	4.5
Contribution per unit   C=A-B	10.5	9.5	11
Units                 D	5400	6300	7200
Contribution amount      C*D	56700	59850	79200
Less: Fixed overhead (5,400*6*25%)	8100	8100	8100
Net profit	48,600	51,750	71,100

Note:

• Variable cost per unit constant
• Fixed cost total constant at 60% capacity fixed overhead cost (5,400*6*25$)=8,100 it is same at 70% and 80% capacity
• Selling price per unit at 70% capacity 25*(100-4)%=24
• Selling price per unit at 80% capacity 25*(100+24)%=25.5