Question

1. Samsung TV sells for £299. The material cost is given as £55, labor cost as £20, and variable overhead as £25 per unit. Fixed production overhead for the year is £1.2million.

i. calculate the break even level of sale for Both Volume and Revenue.

ii. calculate the break even
Revenue using the C/S ratio

iii. if the budgeted sales revenue is £2.99million, calculate the margin of safety in units and as a percentage

iv. produce a break even chart using the above information

iv. how many Samsung TVs must be sold in order to achieve a profit of £500,000?

Answer 1

i)

Variable cost per unit = material cost + labor cost + variable overhead

= 55+20+25

= $ 100

Breakeven volume = fixed overhead cost / (selling price - variable cost )

= 1.2 million / ( 299 - 100 )

= 6030 units

Break even revenue = 6030*299

= 1,803,015

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ii)

Contribution per unit = selling price - variable cost

= 299 - 100

= 199

C/S ratio = contribution margin / selling price

= 199 / 299

= 0.66555

Break even revenue = fixed overhead cost / (C/S ratio)

= 1.2 million / 0.66555

= 1,803,020

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iii)

For budgeted sales revenue of 2.99 million, sales units = 2.99 million / 299

= 10000 units

Break even units = 6030

Margin of safety in units = Sales units for budgeted sales - break even units

= 10000 - 6030

= 3970 units

Margin of safety in percentage = 3970 / 10000

= 39.7 %

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iv)

Break even chart is created as follows:

EXCEL FORMULA:

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v)

In order to achieve desired profit, required sales units = (Desired profit + Fixed overhead cost) / (Selling price - Variable cost)

= (500000 + 1200000) / (299 - 100)

= 8543 units