Question

Blenkinsop Manufacturing produces ChopNSlice, a multifunctional slicing and chopping kitchen tool. The following shows a summary of the manufacturing data for ChopNSlice for 2020. Selling price per unit $ 64 Variable manufacturing costs 38 Annual fixed manufacturing costs 201 060 Variable selling, distribution and administration costs 10 Annual fixed non-manufacturing costs 102 940 Annual volume 28 000 units.

a.Calculate the profit earned in 2020. (1 mark)

b. Blenkinsop Manufacturing has decided to introduce robots in part of the manufacturing production process with the changes taking place in 2021. The new production methods would bring about a decrease in variable costs per unit of $18 but would increase the fixed manufacturing costs by $150 000. How many units would need to be sold to earn the same profit as in 2020? Would you recommend the changes?

c. Prepare the Statement of Profit or Loss for (a) and (b).

Answer 1

a.	Blenkinsop Manufacturing
	Sales (28,000 x $64)	1,792,000
	Variable Costs
	Manufacturing costs (28,000 x $38)	1,064,000
	Selling, distribution and administration costs (28,000 x $10)	280,000
	Contribution margin	448,000
	Fixed Costs
	Manufacturing costs	201,060
	Non-manufacturing costs	102,940
	Net Operating Profit	144,000
b.	Target Sales	17,588
	(Fixed cost + Target Profit)/Contribution Margin per unit
	(454,000 + 144,000) / ($64 - 20 - 10)
	Blenkinsop Manufacturing
	Sales (17,588 x $64)	1,125,632
	Variable Costs
	Manufacturing costs (17,588 x $20)	351,760
	Selling, distribution and administration costs (17,588 x $10)	175,880
	Contribution margin	597,992
	Fixed Costs
	Manufacturing costs	351,060
	Non-manufacturing costs	102,940
	Net Operating Profit	143,992