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AZ Global Company manufactures and sells leather bags. Fixed cost incurred to manufacture the bag is as follows:

 

Rent of workshop                                        Rs. 18,000

Advertising expenses                                  Rs. 31,200

Factory overhead expenses                        Rs. 4,000

Variable cost incurred on each bag

Direct material                                              Rs. 1,000

Direct labor                                                   Rs. 700

Factory overhead                                         Rs. 500

 

 

Sale price of each bag is Rs. 5,000.

 

Required:

  1. Compute the contribution margin ratio with the help of given data.
  2. Compute breakeven point in units with the help of given data.
  3. How contribution margin and break-even (units) will be affected if sales price decreased by 1% and variable cost increased by 5%. (No need to provide working)

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  1. Contribution Margin Ratio =0.56
  2. Break- Even points in units =19 units
  3. Decrease in Contribution Margin = 2800 – 2640 = Rs.160 and Increase in Break- Even Points in units =1.15 units

can you please elaborate it more 

Yeah ap nay kasay solve kya

AZ Global Company manufactures and sells leather bags. Fixed cost incurred to manufacture the bag is as follows:

 Rent of workshop                                        Rs. 18,000

Advertising expenses                                  Rs. 31,200

Factory overhead expenses                        Rs. 4,000

Variable cost incurred on each bag

Direct material                                              Rs. 1,000

Direct labor                                                   Rs. 700

Factory overhead                                         Rs. 500

 Sale price of each bag is Rs. 5,000.

 Required:

  1. Compute the contribution margin ratio with the help of given data.

Total Revenue – (Direct material + direct labor + Factory overhead) / Total Revenue

=5000-(2200)/5000

=2800/5000

=28/50

Contribution Margin Ratio = 0.56

  1. Compute breakeven point in units with the help of given data.

Break-Even Point in Units = Fixed Costs / (Sales Price per Unit - Variable Costs per Unit)

53200 / (5000-2200)

19 Units

  1. How contribution margin and break-even (units) will be affected if sales price decreased by 1% and variable cost increased by 5%. (No need to provide working)

Decrease in Contribution Margin = 2800 – 2640 = Rs.160

Increase in Break- Even Points in units =1.15 units

Contribution Margin = 5000 – 1000 - 700 – 500 = Rs.2800

  1. Contribution Margin Ratio = 2800/5000 = 56
  2. Break- Even points in units = 53200/2800 = 19 units
  3. Sales Price = 4950(1% decrease)

Variable cost = 2310(5% increase)

Contribution Margin = 4950 – 2310 = 2640

Decrease in Contribution Margin = 2800 – 2640 = Rs.160

Break- Even points in units = 53200/2640 = 20.15

Increase in Break- Even Points in units = 20.15 – 19 = 1.15 units

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