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# GDB # 02 MGT 402

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.

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### Replies to This Discussion

lets start discussion. dear all please participate;

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

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

1) Rent of shop

2) Monthly Electricity Bill

3) Depreciation

Fixed cost

Rent of shop             7500

Installment p/m         3750

Deprecation              1500

Monthly electric bill   10000 (not sure in question) normally its consider as variable cost

ya  ans hy kya sir plzzzzzzzzz sir proper ans to bta dnnn

fixed costs are to be accounted for

Fixed cost

Rent of shop              7500

Installment p/m         3750

Deprecation              1500

12750

and what about photocopy installments?

variable cost

Monthly electricity bill Rs. 10,000

Misc. Expenses Rs. 2,500

How Misc.  12500

variable expenses can be treated for determining cost per page

cost of page including(toner+pin)Rs. 01 for each paper

Asif bhai, what is this

its 1.00 or 0.1?

Although electricity bill vary with the use of machine but here it is given for the month and so it will be taken as fixed cost. Moreover , it is very difficult to calculate the electricity price for one page with the given data because we do not know that how many pages are photostatted with certain amount of electricity price.

To my mind, fol would be the VC for each page

Paper  = 350/500 = Rs 0.70

Tonner = 500/5000 = Rs. 0.10

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

Total VC = 1.10

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