Queenie Cocoa manufactures nutritious cocoa powder packaged for local market. The product is sold in boxes at RM40 per unit. The cost incurred to manufacture and market the product follows: Cost Schedule:1. Variable Costs per Box (RM) *Direct Unit=12, Direct Labour per unit=6, Manufacturing overhead=5, selling and administrative=3. 2.Fixed Costs(RM): Manufacturing overhead=300,000 and selling and administrative=120,000
In the first year of its operation, Queenie Cocoa manufactures 50,000 boxes of which 42,000 boxes were sold. (a) Prepare a contribution margin income statement. (b) Calculate Queenie’s break-even point in units and ringgit. (c) Calculate the units that Queenie must sell to achieve an after-tax profit target of RM210,000? Assume the tax rate is 40%. Indicate the margin of safety in units, at this point. (d) Queenie wishes to incur and additional selling expense of RM35,000, other costs remain constant. Calculate the new break-even point in RM.
a)
Contribution Margin Income Statement:
Sales =
Variable production expenses =
Contribution margin = Sales - Variable production expenses =
Fixed production expenses =
Net profit = Contribution margin - Fixed production expenses =
b)
break-even point: profit = 0
x is number of uits
units sold
c)
units sold
margin of safety = (Current Sales Level – Breakeven Point) / Current Sales Level
Current Sales Level = 42000 units
for Breakeven Point:
margin of safety =
d)
units
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