A company manufacturers and sells a single product. The marginal costing statement for the year is as follows; Marginal costing statement Rand Total Per Unit Percentage Sales(22 500) 1 800 000 80 100% Less:total variable costs 1 350 000 60 Contribution 450 000 20 Less;total fixed costs 360 000 Net profit 90 000 required a) calculate the contribution margin ratio and the variable expense ratio b) calculate the breakeven point in units and rands ( using the algebraic equation method) c) the company would like to earn a minimum profit of R120 000. How many units would have to be sold in order to earn this profit?
A company manufacturers and sells a single product. The marginal costing statement for the year is as follows;
Marginal costing statement
| Rand Total | Per Unit | Percentage | |
| Sales(22 500) | 1 800 000 | 80 | 100% |
| Less:total variable costs | 1 350 000 | 60 | |
| Contribution | 450 000 | 20 | |
| Less;total fixed costs | 360 000 | ||
| Net profit | 90 000 |
required
a) calculate the contribution margin ratio and the variable expense ratio
b) calculate the breakeven point in units and rands ( using the algebraic equation method)
c) the company would like to earn a minimum profit of R120 000. How many units would have to be sold in order to earn this profit?
d) calculate the margin of safety in rands and as a percentage
calculate the change in the net profit if sales increase by R600 000 (using the contribution ratio and assuming that the cost behaviour relationship remains the same)
management believes that they could increase sales by 30%, if they improve the quality of the product. To increase the quality of the end product, they would increase the variable cost by R4.50 and they would also have to employ an additional quality inspector who is paid R60 000 for the year.
Draft a marginal costing statement for next year taking the changes into account. Your statement must include all information in rand totals, per unit as well as percentage.
calculate the new breakeven point in units and rands( using the formulae method)
advise the company as to whether or not the changes should be implemented
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