Question

Table 1: Pepita Disco Performance, 2011 (UYU in millions)

Units sold	100 million units
Revenue	200
Variable costs
Materials	30
Direct labor(manufacturing,sales)	40
Opearational costs(manufacturing,inventory,delivery)	30
Other variable costs	20
Margin on Sales	80
Fixed Costs
Marketing and advertising	10
Research and development	10
Other fixed costs(e.g head office)	40
Net margin	20

a. Reduce variable costs per unit 10% and, as a result, unit sales decreased 10%?

Answer 1

Ans:

Given for 100 million units: (in millions)

Revenue = 200

Variable costs = 120

Fixed costs = 60

Workings:

Revenue per unit = $2

($200 / $100)

Variable cost per unit = $1.2

($120 / $100)

Now, variable cost per unit reduced 10% ($1.2*10% = $0.12)

i.e., variable cost per unit = $1.08 ($1.20 - $0.12)

Unit sales decreased 10%, then units to be sold = 90 million

Particulars	Per unit $	Amount $ (in millions)	Workings
Revenue	2	180	(90*2 = 180)
Less: variable cost	(1.08)	(97.20)	(90*1.08 = 97.20)
Margin on sales	0.92	82.80
Less: fixed costs		60
Net margin		22.80

If any doubts or queries please comment and clarify I'll explain ASAP.