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 all variable costs 10%?

b Get its salespeople to sell 10% more?

c Raise its price 10%?

g. Lower its price 10%?

Answer 1

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Pepita Disco
All figures in Millions	Total	Per Unit
Units	100.00
Sales	200.00	2.00	This is sales/ Units.
Direct material	30.00	0.30	This is Direct material/Units.
Direct labor cost	40.00	0.40	This is Direct labor/Units.
Operational costs	30.00	0.30	This is Operational costs/Units.
Other variable costs	20.00	0.20	This is Other variable costs/Units.
Total variable costs		1.20

Workings Answer a	$ Millions
Total variable costs- Current	1.20
Reduction by 10%	0.12
Total Variable costs- Revised	1.08
Income statement	$ Millions
Sales	2.00
Total Variable costs- Revised	1.08
Contribution margin per unit	0.92
Units	100.00
Contribution margin	92.00
Less: Fixed costs
Marketing and advertising	10.00
Research and development	10.00
Other fixed costs(e.g. head office)	40.00
Total Fixed costs	60.00
Net margin	32.00

Workings Answer b	$ Millions
Total Units- Current	100.00
Increase by 10%	10.00
Total Units- Revised	110.00
Income statement	$ Millions
Sales	2.00
Total Variable costs	1.20
Contribution margin per unit	0.80
Units	110.00
Contribution margin	88.00
Less: Fixed costs
Marketing and advertising	10.00
Research and development	10.00
Other fixed costs(e.g. head office)	40.00
Total Fixed costs	60.00
Net margin	28.00

Workings Answer c	$ Millions
Sell price- Current	2.00
Increase by 10%	0.20
Sell price- Revised	2.20
Income statement	$ Millions
Sales	2.20
Total Variable costs	1.20
Contribution margin per unit	1.00
Units	100.00
Contribution margin	100.00
Less: Fixed costs
Marketing and advertising	10.00
Research and development	10.00
Other fixed costs(e.g. head office)	40.00
Total Fixed costs	60.00
Net margin	40.00

Workings Answer d	$ Millions
Sell price- Current	2.00
Reduction by 10%	0.20
Sell price- Revised	1.80
Income statement	$ Millions
Sales	1.80
Total Variable costs	1.20
Contribution margin per unit	0.60
Units	100.00
Contribution margin	60.00
Less: Fixed costs
Marketing and advertising	10.00
Research and development	10.00
Other fixed costs(e.g. head office)	40.00
Total Fixed costs	60.00
Net margin	-