Question

5. DCK (Pty) Ltd produces a single product. You were given the following information regarding the product: Pula (per unit) Selling price 60.00 Variable production costs 12.00 Variable selling cost 4.00 Fixed production cost 40.00 Fixed selling cost 8.00 Budgeted production is 10,000 units. Required: Determine the following: a. Breakeven point in units b. Number of units to be sold if the company wants to achieve a profit of P110,000. c. Breakeven point in Pula, if the variable production cost and selling price per unit are expected to rise by 10% and the fixed production costs rise by 25%. All other costs remain the same.

Answer 1

Selling price per unit = 60

Variable production costs = 12

Variable selling cost = 4

Total variable cost per unit = Variable production costs+ Variable selling cost

= 12+4

= 16

Fixed production cost per unit = 40

Total fixed production costs = Budgeted production x Fixed production cost per unit

= 10,000 x 40

= 400,000

Fixed selling cost per unit = 8

Total fixed selling cost= Budgeted production x Fixed selling cost per unit

= 10,000 x 8

= 80,000

Total fixed costs = Total fixed production costs + Total fixed selling cost

= 400,000+80,000

= 480,000

Contribution margin per unit = Selling price per unit - Total variable cost per unit

= 60-16

= 44

a.

Breakeven point in units = Total fixed costs/ Contribution margin per unit

= 480,000/44

= 10,909 units

b.

Number of units to earn target profit = (Total fixed costs + Target profit)/ Contribution margin per unit

= (480,000+110,000)/44

= 13,409 units

c.

Variable cost and selling price per unit rise by 10%

Variable production costs = 12

Rise by 10%

New variable production cost per unit = 12 + 12 x 10%

= 12+1.20

= 13.20

New total variable cost per unit =  New Variable production costs+ Variable selling cost

= 13.20+4

= 17.20

Selling price rise by 10%

New selling price per unit = 60+ 60 x 10%

= 60+6

= $66

Contribution margin per unit = Selling price per unit - New total variable cost per unit

= 66-17.20

= 48.80

Fixed production cost rise by 25%

Total fixed production costs = 400,000

New fixed production costs = 400,000+ 400,000 x 25%

= 400,000+100,000

= 500,000

Total fixed costs = New fixed production costs + Total fixed selling cost

= 500,000+80,000

= 580,000

Breakeven point in units = Total fixed costs/ Contribution margin per unit

= 580,000/48.80

= 11,885 units

Kindly comment if you need further assistance.

Thanks‼!