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Thursday, November 5, 2015

Management Accounting Math Solution (Break Even Math-2)

Problem: Philips Company manufactures and sells its own brand of cameras. It sells each camera for Tk.28. The company’s account shows the following data:-
Manufacturing cost:
Variable                                 Tk. 12 per unit
Fixed                                      Tk. 1,00,000 per year
Selling and Administrative cost:
Variable                                 Tk. 4 per unit
Fixed                                      Tk. 44,000 per year


Required:
1) Use the per unit contribution margin (CM) approach to determine the Break-even point in unit and in Taka.
2) Use the per unit contribution margin (CM) approach to determine the level of sales in units and in Taka required to obtain a Tk.84,000 profit.
3) Suppose that variable selling and administrative cost could be eliminated by having a salaries sales force. If the company could sale 20,000 units, how much could it pay in salaries for the sales people and still have a profit of Tk.84,000.


Solution:
Total VC = Tk.12+4=Tk.16
Total FC = Tk.1,44,000
Sell price = Tk. 28
Contribution margin = 28-16 = 12


Required 1:
BEP in unit = TFC/CM per unit
                    = 1,44,000/12=12,000 units
BEP in sale volume = Tk. 12,000*28 = Tk.3,36,000


Required 2:
Required sales (in unit)
= (F/C+Target profit) / Contribution Margin
= 1,44,000 + 84,000 / 12 = 19,000 units
Required in sales volume = Tk.19,000*28
                                          =Tk. 5,32,000 
Required 3:
New VC  = Tk.12/unit
Total sell price = 20,000*28 = Tk.5,60,000
New CM = 28-12 = 16

Target profit = Tk.84,000
Target sales = 20,000 units

Suppose salaries = ‘X’
So, FC = (1,44,000 + X)

Target sales    = (FC + Profit) / CM per unit
Or  20,000       = (1,44,000+X+84,000)/16
Or  20,000*16 = 2,28,000+X
Or       X          = 3,20,000 – 2,28,000
Or       X          = 92,000.

So, Salaries will stand = Tk. 92,000
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