Question
In: Accounting
Greenweed Limited manufactures specially treated garden benches. The following information was extracted from the budget for the year ended 29 February 2020:
Greenweed Limited manufactures specially treated garden benches. The following information was extracted from the budget for the year ended 29 February 2020:
The estimated sales for the financial year are 2000 units. The selling price per garden bench is R450. Variable production cost per garden bench comprises of the following:
Direct materials: R135
Direct Labour: R90
Overheads: R45
The cost for fixed production overheads are R127 500 and selling and administrative expenses are broken down as follows:
Salary of sales manager for the year: R75 000
Sales commission: 10% of sales
Required: (Round of answers to the nearest rand or whole number)
4.1 Calculate the breakeven quantity.
4.2 Determine the break-even value using the marginal income ratio.
4.3 Calculate the margin of safety.
4.4 Determine the number of sales units required to make a profit of R150 000.
Solutions
Expert Solution
Segregating Fixed and variable cost.
| Variable cost | Per unit | Fixed cost | Per unit |
Total |
|
| Direct material | 135 x 2000=270000 | 135 | 270000 | ||
| Direct labor | 90 x2000 =180000 | 90 | 180000 | ||
| Overhead | 45 x2000=90000 | 45 | 90000 | ||
| Fixed production OH | 127500 | 127500/2000=63.75 | 127500 | ||
| Selling and admn OH a) Commission | 45x2000=90000 | 450x10%=45 | 90000 | ||
| Selling and admn oh b)Manager salary | 75000 | 75000/2000 47.5 | 75000 | ||
| Total | 630000 | 315 | 202500 | 101.25 | 832500 |
CVP tables
| Amount | Per unit | |
| Sales | 2000 x450 =900000 | 450 |
| Less: VAriable cost | 630000 | 315 |
| Contribution | 270000 | 135 |
| Less: Fixed cost | 202500 | 101.25 |
| Net income | 67500 | 23.75 |
4.1 ) Vreakeven quantity = Fixed cost / Contribution per unit
202500/135= 1500 units
4.2) Break even value(throuh marginal income ratio)
Marginal income ratio(contribution ratio) = Contribution / sales x100
270000/900000 x100 or 135/450x100
= 30%
Breakeven = Fixed cost / contribution ratio
=202500/30% =675000
to check the answer we know break even units are1500 units and selling price is 450
Breakeven value = breakeven units x selling price
1500 x 450 = 675000
4.3) No of units = Desired profit + Fixed cost / Contribution per unit
150000+202500/ 135= 2611.11 or 2611 units
4.4)
| Amount | Per unit | |
| Sales | 900000 | 450 |
| Less variable cost | 330 x2000 =660000 | (315+15) 330 |
| Contribution | 240000 | 120 |
| Less: fixed cost | 202500(1+.01)=222750 | 111.375 |
| Net income | 17250 | 8.625 |
Break even qty = Fixed cost / contribution per unit
222750 /120 = 1856.25 units
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