Analyse costs in business organisations contexts

Question

Honesty LTD produces and sells a single type of high qualiy wood cupboard. the following is the company's estimated unit data for next year:

selling price-OMR300

variable costs:

labour-OMR100

materials-OMR20

selling-OMR5

anticipated fixed costs for the year are OMR40000 for administration and OMR30000 for selling and distribution. Estimated sales for the year are 700 cupboards

 

determine the following for Honesty LTD

a. break even point in terms of number ofcup boards sold and in sales amount;and

b. the margin of safety as a percentage of estimated sales

2)The company is planning to reach a target profit of OMR 60000 for this year. will the estimated sales volumebe sufficient to achieve this? By how much will profit from the estimated sales volume exceed or fall short of thr target profit?

 

Answer 1

a:

Total Fixed Cost = 40000 + 30000 = 70000

Break Even Point = Total Fixed Cost /( selling price - variable cost )

B.E.P = 70000 / ( 300 - 125 ) = 400

b:

Margin = ( Current Sales - B.E.P ) / Current Sales = ( 210000 - 120000 ) / 210000 = 75%

c:

Total Sale( including profit) = FC + VC + P => 300 *Q = 70000 + 125Q + 60000 => Q = 743