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

ekkarill92 answered 2 years ago
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