The following budgeted profit statement has been prepared using absorption costing principles. A company manufactures and sells a single product which has the following cost and selling price structure: P/unit P/unit Selling price 120 Direct material 22 Direct labour 36 Variable overhead 14 Fixed overhead 12 84 Profit per unit 36 The fixed overhead absorption rate is based on the normal capacity of 2,000 units per month. Assume that the same amount is spent each month on fixed overheads. Budgeted sales for next month are 2,200 units. You are required to calculate: a. The breakeven point, in sales units per month. b. The margin of safety for the next month.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
The following budgeted profit statement has been prepared using absorption costing principles.
A company manufactures and sells a single product which has the following cost and selling
price structure:
|
|
P/unit
|
P/unit
|
|
Selling price
|
|
120 |
|
Direct material
|
22 |
|
|
Direct labour
|
36 |
|
|
Variable overhead
|
14 |
|
|
Fixed overhead
|
12 |
84 |
|
Profit per unit
|
|
36 |
The fixed overhead absorption rate is based on the normal capacity of 2,000 units per month.
Assume that the same amount is spent each month on fixed
Budgeted sales for next month are 2,200 units.
You are required to calculate:
a. The breakeven point, in sales units per month.
b. The margin of safety for the next month.
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