Data for a company that makes Industrial use Rubber Gloves.

90000 PER UNIT

A Sales (90000@4.00 Rs per unit) Revenue 4

B Cost of goods sold: Direct Materials VC 1

C Cost of goods sold: Direct Labour VC 1

D Factory Overhead: Variables VC 0.2

E Factory Overhead: Fixed FC 0.8888889

F Gross Margin 0.9111111

G Variable Selling Expenses: Commission VC 0.2

H Variable Selling Expenses: Shipping VC 0.04

I Fixed Selling Expenses (Advertisment and Salaries) FC 0.4444444

J Variable Administrative Expenses VC 0.05

K Fixed Administrative Expenses FC 0.2266667

L Net Profit/(Loss) Net Profit -0.05

Note: Commissions are based on Sales Revenue A-(B+C+D+E)

All other variable expenses vary in terms of units sold
Factory has a capacity of 150000 units per year
Based on Sales Value (Rs) not physical u
Discussion Results have been disappointing for previous year
Management is exploring ways to make operations profitable
 Q 1. UNITS
135000 130000 CONTRIBUTION STATEMENT
Q 2.b Q3. REVENUE
360000 675000 520000 VARIABLE COST
CONTRIBUTION MARGIN
90000 135000 130000 FIXED COST
90000 135000 130000 NET PROFIT/LOSS
BREAK EVEN POINT-SALES
18000 27000 26000
80000 80000 80000 Q 2. a) UNITS

82000 298000 154000 REVENUE

VARIABLE COST
18000 5% 67500 26000 CONTRIBUTION MARGIN
3600 5400 5200 FIXED COST
NET PROFIT/LOSS
40000 190000 69900
Q 2. b) UNITS (Rs5 per UNIT)
4500 6750 6500
20400 20400 20400 REVENUE
VARIABLE COST
(-4500) 7950 26000 CONTRIBUTION MARGIN
FIXED COST
A-(B+C+D+E) NET PROFIT/LOSS

Sales Value (Rs) not physical units

Q3. UNITS (4 Rs.)

REVENUE
VARIABLE COST
CONTRIBUTION MARGIN
FIXED COST
NET PROFIT/LOSS
90000
PER UNIT
360000 4
224100 2.49
135900 1.51 37.75%
140400 1.56 4.05
-4500 -0.05 -4500
4.13245033113

150000

510000
373500
136500
140400
-3900

135000

675000 5
376650
298350
290400
7950

130000

520000 4
323700
196300
170300
26000 26000
 BREAK EVEN POINT-SALES PER UNIT 4.13245

90000 PER UNIT

A Sales (90000@4.00 Rs per unit) Revenue 4

B Cost of goods sold: Direct Materials VC 1 90000

C Cost of goods sold: Direct Labour VC 1 90000
PACKAGING VC 0.1
D Factory Overhead: Variables VC 0.2 18000
E Factory Overhead: Fixed FC 0.888889 80000
DONATION FC
F Gross Margin 0.911111

G Variable Selling Expenses: Commission VC 0.2 18000

H Variable Selling Expenses: Shipping VC 0.04 3600

I Fixed Selling Expenses (Advertisment and Salaries) FC 0.444444 40000

J Variable Administrative Expenses VC 0.05 4500

K Fixed Administrative Expenses FC 0.226667 20400

L Net Profit/(Loss) Net Profit -0.05

 Q 4. 60000 PER UNIT
360000 195100 3.251667

60000
60000
6000
12000

24000
82000 33100

5% 12000

3000
13600

(-4500) 4500
Q1 Recast the income statement into contribution format with three major sections-Sales, Variable expenses and Fixe
Contribution is the difference between Sales and Variable Costs that contribute to recovery of Fixed Costs

Q2 The sales Manager of the company is torn between two courses of Action
a) He believes that a 15% cut in price would fill the plant to capacity
b) He wants to increase prices prices by 25%, to increase advertisment by Rs 150000 and to boost commissions to
Under these circumstances he believes that Sales will increase by 50% from current levels
What would be the Profit/Loss in the two approaches. Assume that there are changes in fixed costs apart from Adv

Q3 The President of the company does not want to tinker with the selling price. How much can the expenditure on Ad
increased to bring Sales and Production upto 130000 so that profit will be 5% of Sales.

Q4 A Government Department is willing to buy 60000 units if the "Price is Right". Assume that the present market of 9
is not affected by the order. There will be no Sales Comission in this order and the Government will pick up the ma
factory (ex-works). The company must however make a donation to a Social Welfare Program launched by the Gov
In addition special packaging (showing the image of a "leader") will increase manufacturing cost by 10 paise per un
At what price should the company offer the 60000 units to the Govt so that the company will break-even for the ye
 s, Variable expenses and Fixed Expenses.
covery of Fixed Costs

and to boost commissions to 10 percent of sales

s in fixed costs apart from Advertising.

ch can the expenditure on Advertising be

e that the present market of 90000 units at 4 Rs

vernment will pick up the material from the
Program launched by the Govt to the tune of 24000.
turing cost by 10 paise per unit.
any will break-even for the year.