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QUESTION # 06

Data:

Selling Price per unit = $ 140

Variable Expense per unit = $ 60

Fixed Expense = $ 40,000

Target Profit = $ 6,000

Find:

1. Unit Sales at Target Profit of 6,000 through Equation method?


2. Unit Sales at Target Profit of 6,000 through Formula Method?

Solution:

1)

Profit = (CM) Q – FC

Profit = (SP- VC) Q – FC

6000 = (140-60) * Q - 40000

Q = 575 units

2)

Unit Sales to Attain the Target Profit = (Target profit +FC)/CM ratio

= (Target profit +FC) / (CM/SP)

= (6000+40000)/ (80/140)

= $84210

QUESTION # 07
Data:

Selling Price per unit = $ 8

Variable Expense per unit = $ 6

Fixed Expense = $5500

Find:

MUHAMMAD SHAHZAIB HANIF 1


1. BEP in unit sales using equation method?
2. BEP in dollar sales using equation method and CM?
3. BEP in unit sales using formula method?
4. BEP in dollar sales using formula method and CM?

Solution:

1)

Profit = (CM) Q – FC

Profit = (SP- VC) Q – FC

0 = (8-6) * Q -5500

Q = 2750 units

2)

Profit = (CM ratio) * Sales – FC

0 = 0.25 * Sales – 5500

Sales = $22,000

3)

Break Even Point = FC/ CM per unit

=5500/2

=2750 units

4)

CM Ratio = CM/Sales

= 2/8

= 0.25

Break Even Sales = FC/CM ratio

=5500/.25

= $22,000

QUESTION # 08

MUHAMMAD SHAHZAIB HANIF 2


Data:

Selling Price per unit = $ 25

Variable Expense per unit = $ 15

Unit Sales per month = 1000

Fixed expense = $ 8500

Find:

1. MOS?
2. % age MOS?

Solution:

1)

Margin of Safety = Total sales – Break even Sales

= (SP per unit * Number of units)


- (BEP* Sales per unit)

= (SP per unit * Number of units)


- (FC/ CM per unit* Sales per unit)

= (25*1000) – (8500*25/10)

MOS = 3750

2)

%age MOS = (MOS/Total Sales) * 100

= 3750/25000 *100

= 15 %

QUESTION # 09
Data:

Selling Price per unit = $ 120,000

Variable Expense per unit = $ 84,000

Unit Sales per month = $36,000

Fixed expense = $ 24,000

Net Income = $12,000


MUHAMMAD SHAHZAIB HANIF 3
Find:

1. Operating Leverage?
2. Net Operating Income?
3. Net increase in Income after 10 % increase in sales?

Solution:

1)

Operating Leverage = CM/ Net Income

= 36000/12000

OL =3

2)

Net Operating Income = Increase in sales * OL

= 10 * 3

= 30 %

3)

Selling Price = $132,000

Variable Expense = $92,400

Contribution Margin = $39,600

Fixed Expense = $24,000

Net Income = $15,600

QUESTION # 10
Find:

1. CM Ratio?
2. Break Even Sales?
3. Verify overall BEP?

Solution:

1)

CM Ratio = CM/Sales

MUHAMMAD SHAHZAIB HANIF 4


= 120000/150000

= 0.8

2)

Break Even Sales = FC/CM ratio

=90000/.8

= $ 112,500

3)

Selling Price =$

Variable Expense =$

Contribution Margin =$

Fixed Expense =$

Net Income =$

QUESTION # 11
Data:

Selling Price per unit = $ 40

Variable Expense per unit = $ 28

Fixed Expense = $150000

Find:

1. BEP in units and Dollar Sales?


2. CM at BEP?
3. Unit Sales at Target Profit of 18,000 through Formula Method?
4. MOS in dollars and % age MOS?
5. CM ratio? If Company sales increase by 80,000?

Solution:

1)

Profit = (CM) Q – FC

Profit = (SP- VC) Q – FC

MUHAMMAD SHAHZAIB HANIF 5


0 = (40-28) * Q -150000

Q = 12500 units

CM Ratio = CM/Sales

= 12/40

= 0.3

Break Even Sales = FC/CM ratio

=150000/.3

= $500,000

2)

Contribution Margin = (SP- VC)*Q

= (40-28) * 12500

= $150,000

3)

Unit Sales to Attain the Target Profit = (Target profit +FC)/CM per unit

= (150000+18000)/12

= 14,000 units

Selling Price = $560,000 $40 per unit @ 14,000 units

Variable Expense = $392,000 $28 per unit @ 14,000 units

Contribution Margin = $168,000

Fixed Expense = $150,000

Net Income = $18,000

4)

Margin of Safety = Total sales – Break even Sales

= (600000) – (500000)

MOS = $100,000

%age MOS = (MOS/Total Sales) * 100

= 100000/600000 *100

MUHAMMAD SHAHZAIB HANIF 6


= 16.67 %

5)

Selling Price = $680,000

Variable Expense = $476,000

Contribution Margin = $204,000

Fixed Expense = $150,000

Net Income = $54,000

CM Ratio = CM/Sales

= 204000/68000

= 30%

QUESTION # 12
Data:

Selling Price per unit = $ 90

Variable Expense per unit = $ 63

Fixed Expense = $135,000

Find:

1. BEP in units and Dollar Sales?


2. If the variable expense per lantern increase as a percentage of selling price, will it result in a
higher or lower break-even point?
3. ?
4. ?

Solution:

1)

Profit = (CM) Q – FC

Profit = (SP- VC) Q – FC

0 = (90-63) * Q -135000

Q = 5000 units

MUHAMMAD SHAHZAIB HANIF 7


CM Ratio = CM/Sales

= 27/90

= 0.3

Break Even Sales = FC/CM ratio

=135000/.3

= $450,000

2)

If the variable expense per lantern increase as a percentage of selling price, will result in a higher break-even
point

3)

Present

Selling Price = $720,000 $90 per unit @ 8,000 units

Variable Expense = $504,000 $63 per unit @ 8,000 units

Contribution Margin = $216,000

Fixed Expense = $135,000

Net Income = $81,000

Proposed

Selling Price = $810,000 $81 per unit @ 10,000 units

Variable Expense = $630,000 $63 per unit @ 10,000 units

Contribution Margin = $180,000

Fixed Expense = $135,000

Net Income = $45,000

4)

Unit Sales to Attain the Target Profit = (Target profit +FC)/CM per unit

= (72000+135000)/18

= 11,500 units

MUHAMMAD SHAHZAIB HANIF 8


QUESTION # 13
Data:

Selling Price per unit = $30

Variable Expense per unit = $7+ $3= $10

Fixed Expense = $1500+700+4800+1000= $8,000

Find:

1. BEP in units?
2. Price per Ticket, if 250 Persons attend?

Solution:

1)

Profit = (CM) Q – FC

Profit = (SP- VC) Q – FC

0 = (30-10) * Q - 8000

Q = 400 units

2)

Total Cost = Fixed Cost + Variable Expense

Fixed Cost per person of 250 Persons = 8000/250

= $32 per person

= 32+10

= $42 per person

QUESTION # 14
Find:

1. Contribution format income statement?


2. BEP?
3. Net Income? If sales increase by $50 per month?

Solution:

1)

MUHAMMAD SHAHZAIB HANIF 9


Model A100 Model 8900 Total

Selling Price = $700,000 $300,000 1,000,000

Variable Expense = $280,000 $90,000 370,000

Contribution Margin = $420,000 $210,000 630,000

Fixed Expense $598,500

Net Income $31,500

2)

CM Ratio = CM/Sales

= 630000/1000000

= 063

Break Even Sales = FC/CM ratio

= 598500/.63

= $950,000

3)

Selling Price = $1,050,000

Variable Expense = $370,000

Contribution Margin = $680,000

Fixed Expense = $598,500

Net Income = $81,500

Net Operating Income Increase = 81500-31500/81500

= 61%

Net Operating Income Increase 161 %

QUESTION # 15
Data:

MUHAMMAD SHAHZAIB HANIF 10


Selling Price per unit = $60

Variable Expense per unit = $42

Fixed Expense = $450,000

Find:

1. Income Statement Format?


2. Percentage increase?

Solution:

1)

Selling Price = $1,800,000 $60 per unit @ 30,000 units 100 %

Variable Expense = $1,260,000 $42 per unit @ 30,000 units 70%

Contribution Margin = $540,000 30%

Fixed Expense = $450,000 20%

Net Income = $90,000 05%

Operating Leverage = CM/ Net Income

= 540000/90000

OL =6

2a)

Net Operating Income = Increase in income * OL

= 25 * 6

= 150 %

2b)

Selling Price = $2,250,000 $60 per unit @ 37,500 units 100 %

Variable Expense = $1,575,000 $42 per unit @ 37,500 units 70%

Contribution Margin = $675,000 30%

Fixed Expense = $450,000 20%

Net Income = $225,000 10%

MUHAMMAD SHAHZAIB HANIF 11

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