Question

1. Develop a profit-and-loss statement for the Westgate division of North Industries.  This division manufactures light fixtures sold to consumers through home improvement and hardware stores.  Cost of goods sold represents 25% of net sales.  Marketing expenses include selling expenses, promotion expenses, and freight.  Selling expenses include sales salaries totaling $6 million per year and sales commissions (4% of sales).  The company spent $5 million on advertising last year, and freight costs were 4% of sales.  Other costs include $3 million for managerial salaries and expenses for the marketing function and another $2 million for indirect overhead allocated to the division.
   1. Develop the profit-and-loss statement if net sales were $30 million last year.
   2. Develop the profit-and-loss statement if net sales were $50 million last year.
   3. Calculate Westgate’s breakeven sales.

Answer 1

Marketing Expenses= Selling Expenses+Promotion Expenses(Advt)+Freight

Part A)

In the books of M/s North Industries(Westgate division)
	Profit and Loss Statement for the period _________
	Particualrs	Details($)	Amount($)
Revenue
	Sales		30,000,000
			30,000,000
Expenses
	Cost of Goods Sold	@25%	7,500,000
	Marketing Expenses
	*Selling Expenses
	>Salaries	6,000,000
	>Sales Commsion (4%)	1,200,000	7,200,000
	*Promotion Expenses(Advertising)	-Given-	5,000,000
	*Freight	@4%	1,200,000
	Mangerial Salaries	-Given-	3,000,000
	Indirect overhead(allocated to Division)	-Given-	2,000,000
			25,900,000
	Profit (Revenue-Expense)		4,100,000

Part B)

In the books of M/s North Industries(Westgate division)

	Profit and Loss Statement for the period _________
	Particualrs	Details($)	Amount($)
Revenue
	Sales		50,000,000
			50,000,000
Expenses
	Cost of Goods Sold	@25%	12,500,000
	Marketing Expenses
	*Selling Expenses
	>Salaries	6,000,000
	>Sales Commsion (4%)	2,000,000	8,000,000
	*Promotion Expenses(Advertising)	-Given-	5,000,000
	*Freight	@4%	2,000,000
	Mangerial Salaries	-Given-	3,000,000
	Indirect overhead(allocated to Division)	-Given-	2,000,000
			32,500,000
	Profit (Revenue-Expense)		17,500,000

Part C)

Break Even point/Sales is that point at which a firms Revenue and Expense Equate each other.

In order to Compute Break even point We must first classify EVERY expense as either Fixed or Variable. A rule of thumb for such classification is that Fixed expense are unaffected by output (Or sales) whereas Variable Costs increase/ decrease with output..

Variable Costs	Percentage of sales	Fixed Costs	Amount
COGS	25%	Selling Expenses(Salaries)	6,000,000
Selling Expenses(Commsion)	4%	Promotion Expense	5,000,000
Freight	4%	Mangerial Salaries	3,000,000
		Indirect O/h	2,000,000
	33%		16,000,000

Break Even Sales = , Price Volume Ratio= Sales(100%)- Variable Cost(33%)

Hence, Break Even Sales=

= $23,880,597

Fired Cost Price Volume Ratio

16,000,000 67 Percent