The income statement of XYZ Company for the 2016 financial year was below expect

Question

The income statement of XYZ Company for the 2016 financial year was below expectations as shown below. Financial item Total in TZS Sales (40,000 units) Cost of raw materials Other variable costs Fixed factory overheads Fixed administrative overheads Sales commission (3% of sales value) Variable delivery costs Other fixed costs 400,000,000 80,000,000 100,000,000 160,000,000 30,000,000 12,000,000 20,000,000 30,000,000 What is the break-even point of the company? 9.1 9.2 The company proposes to reduce the selling price per unit by 10% and by doing so demand is expected to increase by 25%. What would be the profit or loss if this proposal is implemented?

Explanation / Answer

Break even point = Fixed cost/ Contribution per unit

= 1600000+3000000+3000000/4700 = 16170 Units break even point

Analysis of Proposed Situation

New S.P 10000-1000=9000

Demand 40000+25% = 50000 Units

As profit is decresed proposed situation should not be implemented...

Sales   40000 Units Sales            400,000,000 R.m            (80,000,000) v.c         (100,000,000) F.F.O.H            (16,000,000) F.A.O.H            (30,000,000) Sales Commmision            (12,000,000) Variable delivery cost            (20,000,000) other fixed cost            (30,000,000) Profit            112,000,000

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