2010 2011 Sales revenue Operating peofa 30,000 66,000 730,000 114,000 Set out ab

Question

2010 2011 Sales revenue Operating peofa 30,000 66,000 730,000 114,000 Set out above are the sales and net peofits of a business for two years, 2010 and 2011 The fixed costs in 2011 had increased by £16,000 over the previsus year bet the percese contribution remained the same Requined a- Calculate the sales revenae level at which the business broke even in 2011. (10 marks) Total Cost consists of both variable and fixed costs. Therefore, we noed so separse both of them to arrive contribution margin Change in cost 2011: Vc- 616,000-464,000- 152,000 .TVC-152.000-16,000-136000 Fixed Costs Total Cost-Total CV -616,000-136,000 480,000 Breakeven £-Total Fised Cost CM%-480,00.8136-5899705015 Revesue -TVC/Revenue-(730,000-136,000)-480,000/8136 b-Cakculane the sales revenue that would have been required to penerate an operating profit of 000 in 2011. (10 marks Please answer e- Illustrate your answer to (b) on: 1-a chart displaying the contribution level and the profit level; (5 marks question Target Proft-E834848.4948 Total Cost-616000 BE E 589899 s Hhe Ggreaph VCE 136,0 Fixed Cost£ 430,000 UNITS orect Contribution Level& Proft Level Chart 2- a profit-volume chart. (5 marks) Proft Volame Profit Give.ph Core Loss Volume eis is this answer Correct? d- If a new product does not require any new fised costs because the company utlizes the existing capacity of facilities and personnel, what would be the becakeven point? (10 marks) Breakeven point will not change if there is no additional requirement of fixed costs Will remain the same 0 Good luck

Explanation / Answer

a)Change in cost = 600000-464000= 136000

change in sales = 730000-530000=200000

% of variable cost ot sales =change in cost/change in sales

          = 136000/200000

           = .68 or 68%

Contribution margin ratio = 1-variable cost ratio

            = 1-.68

           = .32 or 32%

730000-114000=616000 [out of this $ 16000 is increase in fixed cost]

so Without increase Total cost : 616000-16000=600000

A)Breakeven point in 2011 =Fixed cost of 2011 /C,M ratio

      = 119600/.32

      = $ 373750

B)Target sales revenue :[Fixed cost+ Target profit ]/CM ratio

        = [119600+240000]/.32

     = 359600/.32

    = $ 1123750

2010 2011 Total cost [sales -operating profit] 530000-66000=464000

730000-114000=616000 [out of this $ 16000 is increase in fixed cost]

so Without increase Total cost : 616000-16000=600000

Variable cost 530000*.68= 360400 730000*.68= 496400 Fixed cost 103600 103600 +16000 increase = 119600

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