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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: 5147

Replies to This Discussion

best solution kosa sa h??:p

asif bhai i think ap ki calculation best hai,,,,,,

eman yr is fixed cost ko first point ma e write kra ga na....please tell me

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

Plz... check and guide me either is it correct or is there some thing to be corrected plz! guys!!!

g saba fixed cost 1st point me hi aye ge

thanks for shuring eman pari

adeel bhai me ne bi aise hi kiya hai aur point C ki smj nae a rahi

Monthly Elec bill 10000 or Misc Exp 2500 to nahi na part (a) mein include hone? Part (a) ka ans 27,750 hi hai na?

I think Adil you r right , VC is not a part of gdb

what about this answer

a)

Fixed cost includes shop rent, photocopy installments, installments of loan and depreciation and the total of

Fixed cost = 27750

b)

Variable cost = 12500

Variable cost per page = 1

c)

Misc. expenses are treated in just variable cost and not affect the unit price

d)

Unit contribution margin = 1

c wali option correct karain, only misc. nahein bulkay misc. variable expense. aur misc. variable expense ka unit sale price per impact hota hai,,,, one thing more kaya humain fixed cost mention kerni hai answer main only, because variable cost tu kaehin bhi nahein pouchi gayee???? Guide me

 Adeel Baig Apne 2 dafa instalment dall de hai yr :/ , main samjha apka sahi hai .. keya kr rahay hoo yr ? 1 dafa 15 hazar phr 1 dafa 3750 :/ , or bahi 1 cost 1 dafa daloo yr 

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