Question

URGENT

An extract from the income statement of PoMA Ltd for the previous year is given below:                                                                                                             

                                                                                Rs.                          

Sales (50,000 units)                                         1,000,000

Direct materials                                                350,000                 

Direct labor cost (50,000 hours)                 200,000                 

Fixed manufacturing overhead                  210,000

Variable manufacturing overhead            50,000   

Administration overheads                           180,000                 

Selling and distribution overhead             120,000                 

                                                                                                                

The directors are keen to improve revenue and productivity and are considering various options.             You are the management accountant and are requested to compute the following:                                 

                                                                

a. If salesmen are paid commission of 10% of sales, how many units must be sold to achieve breakeven point.                     

                                                                

b. By how much does profit change (increase or decrease) if the selling price is reduced by 10% resulting in an estimated increase in sales volume (in number of units) by 30%.                                                            

                                                                

c. By how much does profit change (increase or decrease) if the direct labor rate is increased from Rs.4 to Rs.5 per hour. This increase is expected to increase production and sales by 20% without affecting the hours worked. However, advertising costs will increase by Rs.50,000.                                 

                                                                

d. How many units must be sold in order to achieve a target profit margin of 10% on sales (profit/salesx100) assuming that advertising costs will increase by Rs.300,000 and selling price will increase by 20%                                                                                                             

                                                                

e. What is the Margin of Safety at the sales volume derived in part d above (express as percentage of sales)                                                    

Answer 1

the solution is as follows

here for the solution all variable costs are varies according to laval of production hence it is adjusted as per that only.

incase of E requirement D volumeis taken and variable cost adjusted according to that volume only.

thank you......