Question

3. Trade Traders (Pty) Ltd manufactures a single product. The following information was extracted from their budget for the year ended 30 June 2015. [16 Marks] Variable cost per unit P350 Total sales 1800 units Fixed costs P600,000 Selling price per unit P750 Calculate the following: (where applicable round off to the nearest Pula) Breakeven value using contribution margin ratio (4 Marks) (a). (b), Margin of safety (by value) (3 Marks) (c). Sales units required for a profit of P200,000 (4 Marks) (d). Breakeven quantity if' selling price increased by 20%, variable cost per unit increased by 12% and fixed costs increased by P35,00 (5 Marks)

Answer 1

Trade Traders (Pty) Ltd:

Contribution margin ratio = (Selling price - Variable cost) / Selling price

= (750-350) /750 = 53.33%

a) Break even value using contribution margin ratio = Fixed cost / Contribution margin ratio

= 600,000/53.33% = P 11,25,070

b) Margin of safety = (Current sales - Break even value) / Current sales

= (1800×750) - 11,25,070 / (1800×750)

= (13,50,000 - 11,25,070) / 13,50,000

= 16.66%

c) Selling units = (Fixed cost + Desired profit) / (Selling price - Variable cost per unit)

= (600,000 + 200,000) / (750 - 350) = 2000 units

d) Break even point in units = Fixed cost /(Selling price - Variable cost per unit)

= (600,000+35,000) /{(750×120%) - (350×112%)}

= 635,000/(900-392) = 1250 units