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Rehman Sugar Mills is well known for its refined sugar. In the year of 2013, it sold 35,000 bags containing 1.75 million kilograms of refined sugar at Rs. 2,250 each bag.

The variable production and operating costs for the year were;

a)   Purchase cost of sugarcane is Rs.15 per kg;

b)   Crushing process requires Rs.7 per kg;

c)   Boiling the pulp needs Rs. 3 per kg;

d)  Sugar refinement costs Rs. 2 per kg; &

e)   Other variable operating expenses Rs. 9 per kg

Rent of the factory’s outlet for the year was Rs. 1.5 million per month. Depreciation of the company’s plant and other assets was Rs. 36.80 million per year. Misc. fixed operating expenses were Rs.16 million for the year.

For year 2014, it is expected that the sale price will remain the same. But, the demand will be increased by 10%. Accordingly, the variable costs will also be increased by 15%.


1.   Break even point in units and value both for the current and next year.  (3 Marks)

2.   Income statements of both the years.                                                       (4.5 Marks)

3.   If the mills need to earn net profit of Rs. 350,000 in the year of 2014, how many bags it needs to sell.  (2.5 marks)



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Replies to This Discussion

it is not right 36 per kg veriable cost hai to selling price b to per kg lo gay k nai... jo 45 per kg bnti hai

nain horha aesy bi 

This is not correct

At Break even

Target contribution = fixed costs

Contribution Margin per unit  = Selling price per unit - variable cost per unit

Selling price per unit is 2250

Variable price per unit is 1800

Contribution margin per bag will be 450

Fixed costs = 18000000+36800000+16000000 = 70800000

This is our Target Contribution

for 35000 bags contribution is 15750000

agay solve karo please

vc per unit is 1800 How?

VC = 36 / kg = 1800 /50 kg = 1800 /bag

bachon may tmko idea de deta hun... fixed cost sirf 36.8 million lyn gay q k factory outlet or operating fixed cost production cost may include nai hon gay issi trha variable cost 26 per kg hai 9 rupee operating veriable cost include nai hon gay... ye operating expenses hyn... ok...

1 chiz or unit actually kg hai na kk bag... so 2250 unit nai hyn... 1 beg may 50 kg sugar hai...
per kg selling price 45 rupee hogi...
best of luck

acha agr ye bat ha then

sales = 35000 * 45 = 1, 575, 000

variable cost = 35000*36 = 1, 260, 000

contribution margin = 3, 15, 000

or ye jo misc.fixed operating expense kahan jay ga or phir depreciation b to ha isy hm kun nain fixed cost mein lyn gy?  

i think this is also not right.

45 rupees per kg selling price ati hy or variable 45,phir kg sy ku ni hum prices ko multiply kr rhy bags hi ku kr rhy hn

Kuch tu discuss karoo plzzzzz


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