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Opening Date 13-02-2015 And closing date 17-02-2015

Topic: Breakeven Point

Learning Objectives: The students will learn through this GDB the basic mechanism of break-even analysis in small businesses working in surrounding of their daily life.

Learning Outcomes: After going through this GDB, the learners are expected to apply their knowledge through break-even model to solve cost profit volume issues in their surroundings - especially in small business at sole proprietor level.

Question

Mr. Ali - a poor young man has grown up in the vicious state of poverty. Being an uneducated man, he has no respectable livelihood for himself and his poor family. Recently, he has come to know that the local government has announced to provide small interest-free loans to the people for starting small scale businesses.

He planned to start a photocopy center in a rented shop located near a large college. He applied for a loan with the local government and to his luck; he has been provided a loan worth Rs. 90,000 for a period of two years payable in equal monthly installments.

Using this borrowed money, he chalked out a business plan with following features:

Estimated purchase price of a photocopy machine along with a Generator having a combined useful life of 5 years.

Rs.90,000

Other than purchase of photocopy material, monthly expenses are:

Rent of the shop

Monthly electricity bill

Misc. Expenses

 

Rs. 7,500

Rs. 10,000

Rs. 2,500

 

Ali acquired a used photocopy machine along with generator (with the similar expected useful life) for a total of Rs. 90,000 payable in two equal installments; each to be paid by the end of third month. He can easily get paper from a local whole seller at Rs. 350 per ream for a foreseeable period. Each ream consists of 500 papers. Cost of toner refilling is Rs.500 which will last 5,000 pages. Misc. variable costs including the cost of staple pins are estimated at 10% of the unit sale price which is Rs. 2 per page.

Although things were very clear to Ali, yet he was unable to determine the minimum quantity to sell in order to avoid any financial loss. He was more worried as he has to repay the monthly installments along with feeding his small family.

Requirement: While considering the above information you are required to answer the following:

a)      What types of fixed costs are to be accounted for?

b)      How Misc. variable expenses can be treated for determining cost per page?

c)       Do Misc. variable expenses bear any bearing upon unit sale price?

d)      Determine unit contribution margin.

InstructionsJust provide your final answers, no need to paste the calculations. Marks will be given only on the basis of final given answers. 

Views: 5161

Replies to This Discussion

      Paper  = 350/500 =    Rs 0.70

     Tonner = 500/5000 = Rs. 0.10

Misc. VC 10% = 2 x .1 = Rs. 0.20

                       VC          Rs. 01(Rs one)

shakeel bhai ap k total m error ha thanks

Thanks for correction. Asif bhai

so according to this the CM = Sale price - VC

                                         = 2.00  - 1.10 = Rs. 0.90

according to this the CM = Sale price - VC

                                         = 2.00  - 01 = Rs. 01(Rs one)




Okay, got it

According to me , the FC would be

Shop rent   - Rs. 7500.00

Elect Bill     - Rs. 10,000.00

Misc. Exp    - Rs. 2,500.00

Monthly Instl- Rs. 15,000.00

Depreciation - Rs.  1,500.00

Total FC - Rs. 36,500.00

He applied for a loan with the local government and to his luck; he has been provided a loan worth Rs. 90,000 for a period of two years payable in equal monthly installments.

according to above statement loan have been granted to him. Rs. 90000

he is liable to return Govt in equal monthly installment in two year

so, 90000/24 =3750

Ali acquired a used photocopy machine along with generator (with the similar expected useful life) for a total of Rs. 90,000 payable in two equal installments

but in case of purchase machine he has cash in hand to pay for machine value. here the question crating confusion but as per my understanding we consider the fixed loan which is return to govt.  

dear shakeel bhai According to me , the FC would be

Shop rent   - Rs. 7500.00

Elect Bill     - Rs. 10,000.00

Misc. Exp    - Rs. 2,500.00

Monthly Instl- Rs. 15,000.00

Depreciation - Rs.  1,500.00

loan installment Rs. 3750

       Total FC - Rs. 40250



Asif bhai ye depreciation Rs. 1500 kahan se aayee. plz guide me about this depreciation amount. plz... Do you mean 90000/60 months = 1500. Plz Guide sir

machine ki age 5 year ha or is ki cost 90000 ha

to is ki depreciation to ho gi n

90000/5 = 18000 per year

18000/12 = 1500per month

Asif bhai, correct. But all this is irrelevant to the GDB  because this calculation of Fixed cost is not required in GDB. Concept wise it is okay.

electric bill is variable cost here Asif bhai.

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