Question

Q.1. 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

Income statement- at different capacities			in $
	60%	70%	80%
No. of units sold	5400	6300	7200
Sales	$135000	151200	183600
Less: variable cost
Material	43200	50400	57600
Direct labor'	10800	12600	14400
Variable overhead	24300	28350	32400
Total variable cost	78300	91350	104400
Contribution margin	56700	59850	79200
Less: fixed overhead	8100	8100	8100
Net operating income	48600	51750	71100
working
	Units sold U	selling price	Sales	Material U*8	Labor U*2
No. of units at 60% sold is	5400	25	135000	43200	10800
at 100% capacity units sold are
5400/.6	9000
No. of units sold at 70% capacity 9000*70%	6300	24	151200	50400	12600
		(25*96%
No. of units sold at 70% capacity 9000*80%	7200	25.5	183600	57600	14400
		(25*102%)
Fixed overhead at 60%
(5400*6*25%)	8100
No. of units sold	5400	6300	7200
Variable overhead rate 6*75%	4.5	4.5	4.5
Variable overhead	24300	28350	32400