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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

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Replies to This Discussion

wawoooooooooo interesting and tasty question

ik v comment ni krna me stdy related

D@nY@L@fR()Z! as u wish.ap ko koi force ni kry ga comment krny k liy ok.

Guys just tell me what we have to do with variable cost. in the question he has mentioned that fixed cost will not changed, but what happened with variable cost????????

http://vustudents.ning.com/group/mgt402costmanagementaccounting/for...
ap ko variable cost ka idea ha kya krna ha is ka?

Dear, variable cost varies number of units produced. In case of a single unit, it remains same. So, in this case it will remain Rs. 87.5

Hope u must have got some idea.

yes it is cleared thanx

1 is 35100 net sale 

2 is 12350 and per unit is47.50 ..

3rd 16.9 per unit profit 

4 , your own word 

+* Ali Ahsan *+(Mahar) aa ke a

brother calculation share kar dien please meri calculation mein problem araha ha...

yes ali mehar mera b same answer hai .

This is very simple. Reduction in price will reduce the profit margin.

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