Question

Question 04: Daisy Farms (Pvt.) Ltd is engaged in the business of producing premium quality cheese. The cheese is available in 2 packing sizes:

Packing	Weight	Selling Price
Small	100g	$3
Large	250g	$5

The following information is available for the month of February 2017:

• The variable cost of producing every 10g of cheese is $0.05.

• Rent of the dairy farm is $350 per month.

• Electricity charges are $0.5 per unit. Small packs requires 2 units of electricity while large packs needs 3 units of electric power. Fixed line rent is $250 per month.

• Fixed costs are allocated to the products on basis of their sales price.

REQUIRED: Determine the following:

1. The contribution earned by each pack of cheese.

2. The no. of large packs to be sold in February to acquire breakeven.

3. The $ sales revenue of small packs in February to acquire breakeven.

4. The total contribution if 200 small packs & 131 large packs of cheese were sold in February 2017.

Answer 1

CALCULATION OF VARIABLE COST PER PACK
	RATE      (PER 10g)	REQUIRED GRAM (PER PACK)	AMT. (PER PACK)
CHEESE MATERIAL (SMALL)	$0.05	100	$0.50
CHEESE MATERIAL (LARGE)	$0.05	250	$1.25
	RATE     (PER UNIT)	REQUIRED UNITS (PER PACK)	AMT. (PER PACK)
ELECTRICITY CHARGES(SMALL)	$0.50	2	$1.00
ELECTRICITY CHARGES(LARGE)	$0.50	3	$1.50
TOTAL VARIABLE COST PER PACK
SMALL PACK			$1.50
LARGE PACK			$2.75
CALCULATION OF FIXED COST PER PACK
	PER MONTH	ANNUAL
RENT DAIRY FARM	$350	$4,200
FIXED LINE RENT	$250	$3,000
TOTAL	$600	$7,200

PART-(i)

SR. NO.	PARTICULARS	QTY(GRAM)	UNIT (PACKS)	SALE PRICE	VARIABLE COST	TOTAL CONT. (PER PACK)
1	SMALL PACK	100	1	$3	$1.50	$1.50
2	LARGE PACK	250	1	$5	$2.75	$2.25

PART (II) & (III)

CALCULATION OF BREAK EVEN POINT OF MONTH OF FEBUARY
		FORMULA
IN UNITS		FIXED COST
		CONT. PER UNIT
IN SALE VALUE		FIXED COST
		PV RATIO
LARGE PACKS		$600
		$2.25
IN UNITS		267 PACKS APPROX
IN SALE VALUE	267*$5	1335 APPROX
SMALL PACKS		$600
		$1.50
IN UNITS		400 PACKS
IN SALE VALUE	400*$3	$1,200

PART (IV)

SR. NO.	PARTICULARS	UNIT (PACKS)	SALE PRICE	VARIABLE COST	CONT. (PER PACK)	TOTAL CONT.
1	SMALL PACK	200	$3	$1.50	$1.50	$300
2	LARGE PACK	131	$5	$2.75	$2.25	$295 APROX
				TOTAL		$595