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Learning Objectives: The students are expected to learn and apply the cost-volume-profit analysis.

Scenario:

Alvence and Tonee (Pvt.) Limited launched its exclusive designers accessories in ladies and gents shoes few years back in Lahore with the aim to let them handle their necessities with comfort. Now, its brands are famous for stylish and affordable shoes.  

At the start of new financial year, the sales manager of the Alvence and Tonee limited has to plan about future sales of its shoes section, consisting of two product lines - leather gents and ladies shoes. To plan about future sales, the sales manager is in need of data about per unit cost and profit for each product line from the company’s accountant.

Accountant demonstrates the per unit data that shows currently the company is selling leather shoes at Rs.300 per unit and ladies shoes at Rs 190 per unit respectively. Other cost data is as follows:

 

Details

Leather Shoes

Rs. P/U

Ladies Shoes

Rs. P/U

Variable Cost

130

110

Fixed Cost

144

52

Profit

26

28

 

Considering the above mentioned information, answer the following:

a)   Determine per unit contribution margin, contribution margin ratio for each of the product.

b)   If the sales manager decides to increase production substantially any of the above two products, determine which product will be more profitable for the company.

c)    Support your answer in part (b) based on logical reason

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Replies to This Discussion

Determine per unit contribution margin, contribution margin ratio for each of the product.

Statement of Cost Volume Profit

Description Leather shoes Ladies shoes
Sales price per unit
Variable cost per unit 300
130 190
110
Contribution margin
Fixed cost 170
144 80
52
EBIT 26 28

Contribution margin = sales price per unit – variable cost per unit
Leather shoes = 300 – 130 =170
Ladies shoes = 190 – 110 = 80
Contribution margin ratio = contribution margin per unit / sales price per unit
Contribution margin ratio = (Sales price per unit - Variable cost per unit) / sales price per unit
Leather shoes = 170 / 300 = 56.67%
Ladies shoes = 80 / 190 =42.10%

b)   If the sales manager decides to increase production substantially any of the above two products, determine which product will be more profitable for the company.
Suppose the alvenee and pvt. Increase their production to 20 units
Statement of Cost Volume Profit

Description Leather shoes Ladies shoes
Sales price
Variable cost 300*20= 6000
130*20= 2600 190*20= 3800
110*20= 2200
Contribution margin
Fixed cost 3400
144*20= 2880 80
52*20= 1040
EBIT 520 560

This shows physical increase in sales volume cause an increase in contribution margin and fixed cost is also increases as the production increases so profit remains less of leather shoes as compared to ladies shoes. Ladies shoes are more profitable to the company
C) port your answer in part (b) based on logical reason
I think that company should carry both the production units as they give profits but if we need to choose out of these we should prefer ladies shoes.

what is sale ?? here sale price is not mentioned

Accountant demonstrates the per unit data that shows currently the company is selling leather shoes at Rs.300 per unit and ladies shoes at Rs 190 per unit respectively. Check it sale mention ha...

aray koi tu help karay almost time is over.....

need help koi batadai how to calculate fixed cost

a)      Determine per unit contribution margin, contribution margin ratio for each of the product.

 

Statement of Cost Volume Profit

 

Description

Leather shoes

Ladies shoes

Sales price per unit

Variable cost per unit

300

130

190

110

Contribution margin

Fixed cost

170

144

80

52

EBIT

26

28

 

Contribution margin = sales price per unit – variable cost per unit

Leather shoes = 300 – 130 =170

Ladies shoes = 190 – 110 = 80

Contribution margin ratio = contribution margin per unit / sales price per unit

Contribution margin ratio = (Sales price per unit - Variable cost per unit) / sales price per unit

Leather shoes = 170 / 300 = 56.67%

Ladies shoes = 80 / 190 =42.10%

 

b)   If the sales manager decides to increase production substantially any of the above two products, determine which product will be more profitable for the company.

Suppose the alvenee and pvt. Increase their production to 20 units

Statement of Cost Volume Profit

Description

Leather shoes

Ladies shoes

Sales price

Variable cost

300*20=  6000

130*20=  2600

190*20= 3800

110*20= 2200

Contribution margin

Fixed cost

                 3400

144*20= 2880

80

52*20=   1040

EBIT

                 520

                 560

 

This shows physical increase in sales volume cause an increase in contribution margin and fixed cost is also increases as the production increases so profit remains less of leather shoes as compared to ladies shoes. Ladies shoes are more profitable to the company

Ratio may percentage tu nai hota I think dear???

EBIT 520 and 560 kysy aya plz tell

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