Guide for Business Finance | My Assignment Tutor

Assignment 1Guide for Business FinanceSamples Calculation for Breakeven Analysis and Marginal and Absorption CostingSample 1: Breakeven AnalysisA business makes and sells a single product which sells for $20 per unit and whichas a variable cost per unit of $9. Fixed costs are expected to be $600,000 for theyear• Calculate the breakeven point of sales• What would be the breakeven point if the fixed cost were up to $640,000?• What would be the breakeven point if the fixed cost was $600,000, but thevariable cost went up to $11?Solution for Sample 1Calculation of contribution per unitContribution per unit= selling price –variable costTherefore contr/unit= 20-9Contribution/unit =11Calculation of Breakeven point/unit = fixed cost/cm/unitBEP/unit = 600,000/11BEP/unit = 54, 545 unitsWhen fixed cost increased to $640,000BEP/Unit = Fixed cost/cm per unitBEP/unit = 640,000/11BEP/unit = 58, 181 unitCalculation of the breakevenSales (20 x 54, 545) 1,090,900Variable cost (9 x 54, 545) 490, 905Contribution 600,000Less Fixed cost 600,000BEP 0Change in variable cost to $11 and fixed cost at $600,000BEP/unit = Fixed cost/cm per unitBEP/unit = 600,000/9BEP/unit = 66,666 unitsSample 2IllustrationA business makes and sells a single product which sells for $35 per unit and whichas a variable cost per unit of $12. Fixed costs are expected to be $500,000 for theyear and budgeted sales is 70,000 units• Calculate the breakeven point of sales• What would be the breakeven point if the fixed cost were up to $580,000?• What would be the breakeven point if the fixed cost was $500,000, but thevariable cost went up to $15?• Calculate the margin of safety in percentageSolutionCalculation of contribution per unitContribution per unit = Selling Price – Variable costContribution per unit = 35 – 12Contribution per unit = 23Calculate breakeven point per unitBEP/Unit = Fixed cost/contribution per unitBEP/unit = 500,000/23BEP/ Unit = 21,739Calculation of the breakevenSales (35 x 21, 739) 760,865Variable cost (12 x 21, 739) 260, 868Contribution 500,000Less Fixed cost 500,000BEP 0BEP/Unit when fixed cost was up to 580,000BEP/Unit = Fixed cost/Contribution per unitBEP/Unit = 580,000/23BEP/Unit = 25, 217BEP/Unit when fixed cost was o 500,000 and variable cost went up to 15Contribution per unit = Selling price – variable costContribution per unit = 35 – 15Contribution per unit = 20BEP/Unit= Fixed cost/Contribution per unitBEP/Unit = 500,000/20BEP/Unit = 25,000Calculation of the margin of safety in percentageMargin of safety = Budgeted sales – Breakeven point in unitMOS = 70,000 – 21, 739MOS = 48, 261 UnitsMargin of safety in percentageMOS in % = MOS/Budgeted sales x 100MOS in % 48, 261/70,000 x 100MOS in % 0.69 x 100MOS in % = 69%InterpretationThe margin of safety is quite large; therefore, the actual sales will be about 70 %less than budgeted sales before the business makes a lossSample 2: Marginal Costing and Absorption CostingFormat for Absorption Costing DetailsP P PSalesProduction cost of salesOpening stockAdd Production costDirect materialDirect laborProduction cost overheadxxxxxx Less closing stock (x) (x)xProduction o/head absorbed xProduction o/head incurred xUnder/over absorbed x or(x)x Admin o/head incurredSelling % distribution incurredProfitxx (x)xFormat for Marginal CostingDetails P P PSales xVariable cost of salesOpening stock xVariable cost incurredDirect material xDirect labor xVariable Pro cost O/head d x xLess closing stock (x)(x)x Variable Production cost of sales xVariable selling and distribution xTotal variable cost of sales (x)Contribution x Fixed costProfit(x)x Calculation of Absorption CostingChicken & Chips Limited produces a single product ZETAS which as the followingfinancial information are providedSelling price/unit 30Direct Material per unit 8Direct labour per unit 6Variable overhead per unit 2Fixed overhead incurred 24,000/monthBudgeted production and sales were 10,000 unitsActual production was 8,800 units, but sales were just 8,700 unitsWorkingsAbsorption rate per unit = Fixed o/head divided by Budgeted Production & salesAbsorption rate per unit = 24,000/10,000 = 2.4 unitSolution Absorption Costing Sales (30x 8,700)Production cost (8,800 units)Direct Material (8X8, 800)261,00070,400Direct Labor(6X8, 800)52,800V/Overhead(2×8, 800)17,600Fixed o/head (2.4x 8,800)21,120161,920(1,840)160,080Closing stock (18.4 x 100)Production cost of sales100,920 F/Production O/head absorbed21,120F/Production O/head incurredUnder absorbed fixed o/headProfit for the Period24,000 (2,880)98,040Calculation of Marginal CostingSales (30x 8,700) 261,000Production cost (8,800 units) Direct Material (8X8, 800)70,400Direct LaborV/Overhead(6X8, 800)(2×8, 800)52,80017,600140,800(1600)Closing stock (16 x 100)Variable production cost of salesContributionFixed Production costs incurred 139, 200121,80024,000Profit for the Period 97,800

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