Question

The following data are obtained from the records of a factory

Sales (40,000 units @ Br. 25 each) ………… Br. 100,000

Less: Variable Costs………………………… 70,000

Contribution Margin ……………………….. 30,000

Less: Fixed Costs …………………………… 18,000

Net Profit …………………………………… 12.000

Required: Compute:

1) The number of units by selling which the company will neither loss or gain anything

2) The sales needed to earn a profit of 20% on sales

3) The extra units which should be sold to obtain the present profit if it is proposed to

reduce the selling price by 25%

4) The selling price to be fixed to bring down its break-even point to Br.500 units under

present condition

Answer 1

1) Break Even point= $\frac {Fixed cost}{(Sales per unit price-Variable cost per unit)}$

=$\frac{18000}{(25-1.75)}=\frac{18000}{23.25}$

=774.2 units

2) Let us assume sales = X

Profit will be 20% of X= 0.2X

Profit =sales -Cost

Cost = Fixed cost + Variable cost

=18000+70,000= 88,000

0.2X=X-88,000

X-0.2X=88,000

0.8X=88,000

X= 110,000 units

3) Extra Units to be sold

Current Selling Price=75% 0f Br25= Be 18.75

Profit = Sales- cost

Profit remains at 12,000

Let sales be X

12000=X-88,000

X=100000

Number of units sold=$\frac {total sales}{selling price per unit}$

=$\frac{100000}{18.75}=5333.3$

Extra units= 5333.3-4000= 1,333.33

4) Selling price to be fixed to bring break even to Br 500 units

Break even=$\frac {Fixed cost}{(Sales per unit price-Variable cost per unit)}$

Let Selling price per unit be X

500=$\frac {18000}{(X-1.75)}$

$500\times(X-1.75)=18000$

$500X-875=18000$

500X=18875

X=$\frac{18875}{500}=37.75$