Question

Written Questions Question 1. The management of Zenith plc are to assemble a new computer aimed at the business market. The forecast cost structure for producing this new computer is as follows: Materials Component A $150 per unit. Materials Component B $300 per unit. Labour Labour is paid on a piecework basis of $100 per unit. Fixed Overheads For activity between zero and 80,000 units per annum the expected cost is $5.8 million. Sales It is expected that the selling price will be $710 per computer. Required: 1. Determine the profit when producing 0, 30,000, 40,000, and 80,000 units per annum. 2. Calculate the break-even point.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

Answer 2 Part 1) Profit Statement at Different level of units sold 4 Particulars o units 30000 units 40000 units 5 Revenue 21300000 28400000 (30000*710) (710*40000) 7 Material Cost of Component A 4500000 6000000 (150*30000) (150*40000) 9 Material Cost of Component B 9000000 12000000 (300*30000) (300*40000) 11 Labour Cost 3000000 4000000 (30000*100) (40000*100) 13 Contribution Margin 4800000 6400000 14 Fixed Overheads 5800000 5800000 5800000 15 Net Operating income / (loss) -5800000 -1000000 600000 80000 units 56800000 (710*80000) 12000000 (150*80000) 24000000 (300*80000) 8000000 8000000 12800000 5800000 7000000 16 17 Part 2) 18 Break even units 19] = fixed cost / contribution margin per unit 20 = 5800000/(710-150-300-100) 21 = 36250 22 23 Thus the correct answer break even units = 36250 units