The Chatswood Limestone Company produces thin limestone sheets that are used for the facing on buildings. As can be seen in the contribution margin statement, last year the company had a net profit of $157, 500, based on sales of 1 800 tonnes. The manufacturing capacity of the firm’s facilities is 3, 000 tonnes per year.
Chatswood Limestone Company Contribution margin statement Year ended 31 December |
|
Sales |
$ 900, 000 |
Variable costs: |
|
Manufacturing |
$315, 000 |
Selling |
180, 000 |
Total variable costs |
$495, 000 |
Contribution margin |
$405, 000 |
Fixed costs: |
|
Manufacturing |
$100, 000 |
Selling |
107, 500 |
Administrative |
40, 000 |
Total fixed costs |
$247, 500 |
Net Profit |
$157, 500 |
Required:
Company’s break-even volume, in tonnes | |||
Total Fixed costs for year | $ 247,500.00 | ||
Contribution margin per tonne | $ 225.00 | ||
Break even tonne = Total Fixed costs / Contribution margin per tonne | |||
Break even tonnes = | 247500/225 | ||
Break even tonnes = | 1100 | Tonne | |
A | Total Sales | $ 900,000.00 | |
B | Total variable costs | $ 495,000.00 | |
C | Contribution margin | $ 405,000.00 | |
D | Sales (Tonnes) | 1800 | |
A/D | S.P (per tonne) | $ 500.00 | |
B/D | Variable cost per tonne | $ 275.00 | |
C/D | Contribution margin per tonne | $ 225.00 |
Net Profit at 2100 tonnes | |
S.P per tonne | $ 500.00 |
less: variable cost per tonne | $ 275.00 |
Contribution margin per tonne | $ 225.00 |
* Sales (tonne) | 2100 |
Total Contribution | $ 472,500.00 |
Less: Fixed costs for the year | $ 247,500.00 |
Net profit for the year | $ 225,000.00 |
Net profit the firm would earn if it took this order and rejected some business from local customers | ||
Net Profit for year At 1800 Tonnes | $ 157,500.00 | |
Add : Increase in contribution margin for 1500 tonnes | $ 262,500.00 | 1500 * ( 450 - 275) |
less : Decrease in contribution margin for 300 tonnes | $ (67,500.00) | 300* ( 500-275) |
Net profit for year | $ 352,500.00 | |
Total capacity is restricted to 3000 tonnes so if order by overseas customer is accepted company would lose 3000 tonnes to local market |
Tonnes that would be needed to sold in the new territory to maintain the firm’s established territories | ||
A | Increase in fixed costs | $ 61,500.00 |
Existing Contribution margin per tonne | $ 225.00 | |
Increase in variable cost per Tonne (commission) | $ 25.00 | |
B | Revised contribution per tonne | $ 200.00 |
A/B | Tonnes that would be needed to sold in the new territory to maintain the firm’s established territories | 307.5 |
New break-even volume in tonnes and in sales dollars | |||
Increase in fixed costs | $ 58,500.00 | ||
Existing Fixed costs | $ 247,500.00 | ||
A | Total fixed costs | $ 306,000.00 | |
Existing contribution margin per tonne | $ 225.00 | ||
Add: saving in variable costs per tonne | $ 25.00 | ||
B | Revised contribution margin per tonne | $ 250.00 | |
Break even tonne = Total Fixed costs / Contribution margin per tonne | |||
A/B | Break even tonne = | 306000/250 | |
A/B | Break even tonne = | 1224 | Tonne |
C | Break even tonne = | 1224 | |
D | S.P | $ 500.00 | |
C*D | Break even Sales (Dollars) | $ 612,000.00 |
Level of sales (dollars) required to earn a net profit of $94, 500 | |||
Net profit required | $ 94,500.00 | ||
Existing Fixed costs per year | $ 247,500.00 | ||
A | Total contribution Margin to be earned | $ 342,000.00 | |
Current S.P per tonne | $ 500.00 | ||
New S.P per tonne | $ 450.00 | (500-10%) | |
Current Variable cost per tonne | $ 275.00 | ||
New Variable costs per tonne | $ 315.00 | (275+40) | |
New S.P per tonne | $ 450.00 | ||
New Variable costs per tonne | $ 315.00 | ||
B | Revised Contribution margin per tonne | $ 135.00 | |
A/B | Tonnes to be sold to earn required contribution margin | 342000/135 | |
A/B | Tonnes to be sold to earn required contribution margin | 2,533.33 | |
*New S.P per tonne | $ 450.00 | ||
Level of sales (dollars) required | $ 1,140,000.00 |
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The Chatswood Limestone Company produces thin limestone sheets that are used for the facing on buildings....
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