Question

Question 5

LGP sells bottled gas to petrol stations for resale. The petrol stations buy the bottles in lots of 500 for $15000. LPG’s variable costs per bottle are $25. Monthly fixed costs are $102,000.

Required

1.       Calculate the breakeven point in sales revenue and units (gas bottles).

2.       Calculate the volume required to earn $300,000.

3.       How does your analysis change if you learn that LPG uses sales agents who are paid a commission of $0.50 per gas bottle sold?

Question 6

An energy drink company sells its product to supermarkets and wholesalers for $5 per can. Its factory fixed costs per month are $200,000. Its monthly marketing costs are $80,000. The variable costs per can are $0.50.

Required

1) Calculate the breakeven point in units and $ revenue per month.

2) Calculate the $ revenue required to reach a profit target of $250,000.

3) Calculate the $ revenue required to reach a profit target of $250,000 assuming that the company is liable to 30% income tax.

Question 7

Al Ain College (AAC) offers evening courses for mature students in various business subjects. AAC charges AED500 for a 4-week course. The monthly fixed costs are AED 120,000. Variable costs per student are AED50.

Required

1.       Calculate the breakeven point in number of students and AED revenue.

2.       Calculate the contribution margin ratio.

3.       How many students need to attend AAC to generate a monthly profit of AED80,000?

4.       How does your analysis change if AAC is liable to 25% income tax?

Answer 1

Question 5

1. Break even point = Total Fixed Cost / (Sales Price - Varible Cost)

$102,000/ ($30 - $25) = 20400 unit

Break even point Sales Revenue = 20400* $ 30 = $ 612,000

2. Volume required to earn $300,000 = 80,400 unit

Say unit = x

$300,000 = $30x - 25x - $102,000

$402,000 = 5x

x = 402000/5 = 80,400

3. commission of $0.50 per gas bottle sold

Revised Break Even Point = $102,000/ ($30 - $25.5) = 22,667 unit

Question 6

1. Break even point = Total Fixed Cost / (Sales Price - Varible Cost)

$280,000/ ($5 - $0.5) = 62,222 unit

Break even point Sales Revenue = 62,222* $ 5 = $ 311,110

2. Volume required to earn $250,000 = 117,778 unit

Say unit = x

$250,000 = $5x - 0.5x - $280,000

$530,000 = 4.5x

x = 530000/4.5 = 117,778

3. 30% income tax to earn 250,000

Revised profit target with tax = 250,000 * 30% + 250,000 = 325,000

$325,000 = $5x - 0.5x - $280,000

$605,000 = 4.5x

x = 605000/4.5 = 134,444

Question 7

1. Break even point = Total Fixed Cost / (Sales Price - Varible Cost)

120000/ (500-50) = 267 student = 267 * 500 = revenue 133,500

2. contribution margin ratio = (Total revenue - veriable cost) / Total Revenue

(500 - 50)/ 500 = 0.90

3. students need to attend AAC to generate a monthly profit of AED80,000 = 445 student

80000 = 500x - 50x - 120000

200000 = 450x = 445 student