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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.

Views: 5147

### Replies to This Discussion

d)      Determine unit contribution margin.

Solution:-

Contributin margin= (sale price per unit- cost price per unit)

Unit sales price = Rs. 2

Unit cost price = Rs. 1

Contributin margin=    Rs. 2 – Rs. 1

Contributin margin=   Rs. 1

Fixed cost 12,750 , baki solution given hai best of luck all.

Shop rent   - Rs. 7500.00

Elect Bill     - Rs. 10,000.00

Monthly Instl- Rs. 15,000.00

Depreciation - Rs.  1,500.00

loan installment Rs. 3750

above all are treated as a fixed costs.

other posted solution are perfect

Are we suppose to write down the numerical answers or just

a) Type of fixed costs

b) How are Misc var expense is treated    etc. ???????

kisi ky pas complete solution nahe hai???

aper  = 350/500 =    Rs 0.70

Tonner = 500/5000 = Rs. 0.10

Misc. VC 10% = 2 x .1 = Rs. 0.20

Variable Cost per page Rs. 01(Rs one)

d) Contribution Margin = Sale price - Variable Costs

= 2.00  - 01 = Rs. 01(Rs one)

c) change sale in sale affect the variable costs

if sales is higher = variable costs also higher

lower sales indicate =  less variable

asif bai complete solutions send ker do plz,,,

aik to report ki last date aur oper say GDB hyee mar dala vu nay,,,,

all steps are posted of gdb MGT402

A)

Shop rent   - Rs. 7500.00

Elect Bill     - Rs. 10,000.00

Monthly Instl- Rs. 15,000.00

Depreciation - Rs.  1,500.00

loan installment Rs. 3750

above all are treated as a fixed costs.

other posted solution are perfect

Fixed costs 37,750 accounted for

B)  Variable Cost

Paper  = 350/500 =    Rs 0.70

Toner = 500/5000 = Rs. 0.10

Misc. VC 10% = 2 x .1 = Rs. 0.20

Variable Cost per page Rs. 01(Rs one)

C)

sales affect the variable costs

Change sale in sale affect the variable costs

if sales is higher = variable costs also higher

lower sales indicate =  less variable

D)

Contribution Margin

= Sale price - Variable Costs

=   2.00  less  01

Contribution Margin= Rs. 01(Rs one)

complete solution

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