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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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