ACCG200 Case Study - Breakeven Analysis NEED HELP PLS! Moveover Motor Ltd (MML)

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ACCG200 Case Study - Breakeven Analysis

NEED HELP PLS!

Moveover Motor Ltd (MML) Moveover Motors Ltd (MML), located in Melbourne, produces and sells a medium-sized family car called the Moveover Magnet. The company has been producing cars for the Australian market for over 30 years and began exporting a limited number of cars to the United States about 10 years ago. MMIL is a subsidiary of a Polish multinational that has not been satisfied with the losses that the company has been making in the last few years. The parent company in P factory unless MML can produce a profit in the next year of operations. The factory currently hasa capacity to produce 50,000 cars per year but all realistic estimates of its market size, including the exports to the United States, suggest that it will not sell more than 30,000 cars next 5 years. oland is threatening to close the Australian per year in any of the Jane Woodall MML's CEO, was very concerned about MML's poor profitability. She asked Lester Bush, financial controller and Max Lemond, production manager, to see if there were ways to reduce costs and improve profitability. Lester anal ysed the cost structure of MML and found the following: Man ufacturing costs: Variable cost- $15,000 per car Fixed cost- S450,000,000 for 30,000 cars, or $15,000 per car Selling and administrative expenses: Variable cost- $5,000 per car Fixed cost- $180,000,000 During the year end 30 June 2017, MML sold 28,000 Moveover Magnets for $40,000 each Lester considered the fact that the capacity of the factory significantly exceeds the production levels and realised that significant savings could be made in both the production and administrative fixed expenses if some of the factory were disposed of. He estimated that by reducing the capacity to 30,000 administrative costs would decrease to $160 million cars per year, the fixed manufacturing costs would fall to $300 million and the fixed Before Lester could report back to Jane, Max returned with a proposal to reduce the variable costs to 30% of revenues by reducing the costs MML incurred for safe disposal of wasted metals. Lester was concerned that this would expose the company to potential environmental liabilities and he let Max know it.

Explanation / Answer

Note: For remaining parts in this assignment, please submit a fresh question.

Part 1 (a) - Prepare Income statement showing contribution margin. MOVEOVER MOTORS LTD Income Statement For the year ended June 30, 2017 Units sold 28000 Sales at $40,000 each 1120000000 Less: Variable costs Manufacturing at $15,000 each 420000000 Selling at $5,000 each 140000000 Total variable costs 560000000 Contribution Margin 560000000 Less: Fixed costs Manufacturing 450000000 Selling 180000000 Total Fixed costs 630000000 Net Income / Loss -70000000 Part 1-(b) what is the company's breakeven point in cars and sales dollars. Per unit Percent Sales price 40000 100% Less: Variable costs Manufacturing 15000 Selling 5000 Total variable costs 20000 50% Contribution Margin - per unit 20000 50% Fixed costs Manufacturing 450000000 Selling 180000000 Total Fixed costs 630000000 Breakeven points - in cars (Total fixed costs / Contribution martgin per car) 31500 - in dollars (Total fixed costs / Contribution martgin percent) 1260000000 The breakeven point is more than the maximum size of the market for the Moreover Magnet. Part 1 © - Should some of the factory be disposed of and would achieve the profit demanded by the parent company. MOVEOVER MOTORS LTD Projected Income Statement For the year ended June 30, 2018 Units sold 30000 Sales at $40,000 each 1200000000 Less: Variable costs Manufacturing at $15,000 each 450000000 Selling at $5,000 each 150000000 Total variable costs 600000000 Contribution Margin 600000000 Less: Fixed costs Manufacturing 300000000 Selling 160000000 Total Fixed costs 460000000 Net Income / Loss 140000000 The above projected income statement indicates a net income, the company should dispose of and achieve the profits demanded by the parent company. The other factors to be considered is that the company's present operation should be effected and future requirements should be fulfilles as required.   Part 2(a) - Calculate the company's breakeven point if the variable costs is 30% of revenue. Per unit Percent Sales price 40000 100% Less: Variable costs 12000 30% Contribution Margin - per unit 28000 70% Fixed costs Manufacturing 450000000 Selling 180000000 Total Fixed costs 630000000 Breakeven points - in cars (Total fixed costs / Contribution martgin per car) 22500 - in dollars (Total fixed costs / Contribution martgin percent) 900000000 Part 2(b) - Calculate the company's profit, if the total variable costs had been 30% of the revenues. MOVEOVER MOTORS LTD Income Statement For the year ended June 30, 2017 Units sold 28000 Sales at $40,000 each 1120000000 Less: Variable costs (30% of revenue) 336000000 Contribution Margin 784000000 Less: Fixed costs Manufacturing 450000000 Selling 180000000 Total Fixed costs 630000000 Net Income / Loss 154000000

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