A company produces only one product. Normal capacity is 0000units per year and t
ID: 2433583 • Letter: A
Question
A company produces only one product. Normal capacity is 0000units per year and the unit sales price is Rs.5 relevant costsare:
Unitvariablecost Total fixed cost
Materials Rs.1.00
Directlabor 1.20
Factoryoverhead 0.50 Rs.15000
Marketingexpenses 0.30 5000
Administrativeexpenses 6000
Required: compute (2) breakeven point in units of product (2)break even point in sales (3) the number of unit product that mustbe produced and sold to achieve a profit of Rs.10000 and (4) thesales revenue required to achieve a profit of Rs.10000.
Explanation / Answer
SalePrice 5.00 Less: : Variablecosts Materials 1.00 Directlabor 1.20 FactoryOH 0.50 Marketingexpenses 0.30 -------- 3.00 ---------- Contributionmargin 2.00 ======= Compute breakeven point in units ofproduct ============================== Break even points(units) = Fixedcosts / Contribution per unit = (15,000 + 5,000 + 6,000) /2.00 = 26,000 / 2 = 13,000units break evenpoint in sales ================= 13,000 x 5= 65,000 (3) thenumber of unit product that must be produced and sold to achieve aprofit of Rs.10000 ============================================================ Requiredunits to be sold = (Fixed costs + desired profit) /Contribution per unit =(26,000 + 10,000) /2.00 = 18,000 units (4) thesales revenue required to achieve a profit ofRs.10000 ======================================= 18,000units x 5.00 (sale price perunit) = 90,000 break evenpoint in sales ================= 13,000 x 5= 65,000 (3) thenumber of unit product that must be produced and sold to achieve aprofit of Rs.10000 ============================================================ Requiredunits to be sold = (Fixed costs + desired profit) /Contribution per unit =(26,000 + 10,000) /2.00 = 18,000 units (4) thesales revenue required to achieve a profit ofRs.10000 ======================================= 18,000units x 5.00 (sale price perunit) = 90,000
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