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COST-VOLUME-PROFIT ANALYSIS

 

Learning Objective: Students will be able to to learn and apply the cost-volume-profit analysis.

 

Scenario:


Modern Industries (PVT) Ltd. manufactures basketballs and sells them across the country. The company’s management is desirous to boost-up the yearly profits and considering a change in the sales price of its products in this regard. The company’s management accountant has developed following information using the recent year’s published accounts:

          

 

TOTAL  

   UNITS

Sales (200 units)                   

Rs. 30,000                    

Rs.150.00

Variable cost                            

17,500                        

087.50

Contribution margin                  

12,500                          

62.500

 

Fixed cost                                  

 5,000                          

 

Profit before tax                         

7,500                    

 

                       

The management accountant believes that a 10% reduction in selling price would increase the sales volume by 30%.

 

Required: Analyze the above information carefully and answer the following assuming no change in the fixed cost:                                                        
  i)     Change in the net sales;                                                                

ii)      Change in the contribution margin in total & per unit;                                             

iii)    Change in per unit net profit assuming 40% tax rate;

iv)     Would you recommend the proposed sale price and why?

 

Important Instructions:

 

1. The GDB will remain open for 3 working days/ 72 hours.

2. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.

3. Obnoxious or ignoble answer should be strictly avoided.

4. Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.

 

Ø For Detailed Instructions please see the GDB Announcement

Views: 6430

Replies to This Discussion

Now you will only see that after deduction of 40% tax, whether they are still getting some profit or not. If they are getting then you must support the idea of reducing the price. If not getting the profit then drop the idea.

To my calculations, they still be getting Rs. 4410 as a whole and Rs. 16.96 per unit profit. So, according to me we should support the 10% reduction in price if unit sale really increases by 40%.

Fighting Falcon Shakeel thnx a lot bhaia

Its okay, GDB discuss karn

Please mujhy koi batayga k change in net sales kesy calculate hongen formula batadain ???/

Sale (revenue) = Quantity x Price

In this case 10% reduction in price will be calculated. 10% of 150 is 15 and so 150-15=135.

30% increase in sales volume. 30% of 200 units is 60 and hence new number of units will be 260.

So,

Net Sale (revenue) = 260 x 135 = 35100

thank you very very much Fighting Falcon Shakeel 

sari meri mehnat aur thanks kasi aur ko  wahh  

+ ANGEL SWEET DoLL + ye answer hai GDB K

 

Given data of 200 units

30% increased sales volume 260 units

 

 

Total

Per Unit

Total

Per Unit

 

Sales

30,000

150

260 x 135= 35100

150 - (150 x .1)

=135

 

Variable Cost

17,500

87.50

260x87.5= 22750

87.50

 

CM

12,500

62.50

12,350

47.5

 

Fixed Cost

5,000

 

5000

 

 

Profit before Tax

7,500

 

7350

 

 

Tax 40%

7500 x .4

=3000

 

7350 x .4

=2940

 

 

Net Profit

4500

 

4410

 

 

Per Unit Net Profit

4500 / 200

=22.2

 

16.96

 

 

I personally do not agree with the proposal because net profit has decreased by Rs 90.

Friends, i think the sales volume of Rs 30000 will increase by 30%. So it will become 39000.

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