Two manufacturing companies which have the following operating details decide to
ID: 2665271 • Letter: T
Question
Two manufacturing companies which have the following operating details decide to merge:
Particulars
Company No. 1
Company No. 2
Capacity utilization %
Sales (Rs. Lakhs)
Variable Cost (Rs. Laksh)
Fixed Cost (Rs. Laksh)
90
540
396
80
60
300
225
50
Assuming that the proposal is implemented calculate :
(i) Break-even sales of the merged plant and the capacity utilization at that stage.
(ii) Profitability of the merged plant at 80% capacity utilization.
(iii) Sales turn over of the merged plant to earn a profit of Rs. 75 lakhs.
(iv) When the merged plant is working at a capacity to earn a profit of Rs. 75 lakhs what percentage increase in selling price is required to sustain an increase of 5% in fixed overheads.
Particulars
Company No. 1
Company No. 2
Capacity utilization %
Sales (Rs. Lakhs)
Variable Cost (Rs. Laksh)
Fixed Cost (Rs. Laksh)
90
540
396
80
60
300
225
50
Explanation / Answer
Company 1 Company 2 Merged Plant 100% 100% 100% Sales - (A) 600 500 1100 Variable Costs(B) 440 375 815 Contribution C = (A-B) 160 125 285 PV Ratio (C / A)*100 26.67% 25% 25.91% Fixed Cost 80 50 130 Net Profit 80 75 155 (i) Break Even Sales of Merged Plant BEP = Fixed Cost / PV Ratio = 130 / (25.91/100) BEP in Lakshs = 501.74 Capacity For this Stage 1100 100% 501.74 ---? = (501.74*100) / 1100 = 45.61 % (ii) Profitability of the merged plant at 80% capacity utilization Sales = 100% 1100 = 80% ---? = (80*1100) / 100 Sales at 80% 880 Variable Cost = 100 % 815 = 80% -- ? = (80*815) / 100 Variable cost at 80% 652 Profitability of the merged plant at 80% capacity utilization Sales 880 Variable Cost 652 Contribution 228 Fixed cost 130 Profit in Lakhs 98 (iii) Sales turn over of the merged plant to earn a profit of Rs. 75 lakhs Sales * PV Ratio = Fixed Cost + Profit Sales * 25.91 / 100 = 130 + 75 Sales = (130+75) / 0.2591 = 205 / 0.2591 Sales in lakhs to get 75 lkhs profit = 791.2 (iv) When the merged plant is working at a capacity to earn a profit of Rs. 75lakhs What %increase in selling price is required to sustain an increase of 5% in fixed overheads Sales in lakhs to get 75 lkhs profit = 791.2 Fixed costs 130 Fixed costs with 5% increase 136.5 Sales * PV Ratio = Fixed Cost + Profit Sales * 25.91 / 100 = 136.5 + 75 Sales = 211.5 / 0.2591 Sales = 816.29 Difference Sale = 816.29 - 791.2 = 25.09 % to increase = (25.09 / 791.2) * 100 Increae % in Selling Price = 3.17% Company 1 Company 2 Merged Plant 100% 100% 100% Sales - (A) 600 500 1100 Variable Costs(B) 440 375 815 Contribution C = (A-B) 160 125 285 PV Ratio (C / A)*100 26.67% 25% 25.91% Fixed Cost 80 50 130 Net Profit 80 75 155 (i) Break Even Sales of Merged Plant BEP = Fixed Cost / PV Ratio = 130 / (25.91/100) BEP in Lakshs = 501.74 Capacity For this Stage 1100 100% 501.74 ---? = (501.74*100) / 1100 = 45.61 % (ii) Profitability of the merged plant at 80% capacity utilization Sales = 100% 1100 = 80% ---? = (80*1100) / 100 Sales at 80% 880 Variable Cost = 100 % 815 = 80% -- ? = (80*815) / 100 Variable cost at 80% 652 Profitability of the merged plant at 80% capacity utilization Sales 880 Variable Cost 652 Contribution 228 Fixed cost 130 Profit in Lakhs 98 (iii) Sales turn over of the merged plant to earn a profit of Rs. 75 lakhs Sales * PV Ratio = Fixed Cost + Profit Sales * 25.91 / 100 = 130 + 75 Sales = (130+75) / 0.2591 = 205 / 0.2591 Sales in lakhs to get 75 lkhs profit = 791.2 (iv) When the merged plant is working at a capacity to earn a profit of Rs. 75lakhs What %increase in selling price is required to sustain an increase of 5% in fixed overheads Sales in lakhs to get 75 lkhs profit = 791.2 Fixed costs 130 Fixed costs with 5% increase 136.5 Sales * PV Ratio = Fixed Cost + Profit Sales * 25.91 / 100 = 136.5 + 75 Sales = 211.5 / 0.2591 Sales = 816.29 Difference Sale = 816.29 - 791.2 = 25.09 % to increase = (25.09 / 791.2) * 100 Increae % in Selling Price = 3.17%Related Questions
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