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Question: Question # 4
Gullever Engineering Ltd,
manufactures lathe machines. Its
budget data for next year...

Question # 4

Gullever Engineering Ltd, manufactures lathe machines. Its

budget data for next year is as under:

                                                                       
       Rs.

Sales (2,000
units)                                     
8,000,000

Variable
cost                                                
3,000,000

Contribution
margin                                   
           
5,000,000

Fixed
cost                                                     
2,000,000

Operating
income                                       
3,000,000

Required:

i. Calculate breakeven point in units and

amount.                                  
ii. Calculate margin of safety in units and
amount                                   

Question # 5

Normal annual capacity of Karachi Company is 200,000 units and

the sales price is Rs.32 per unit. Unit cost
of components is as
under:

Variable cost per unit

(Rs.)          Fixed
Cost(Rs.)

Direct
material                                             
9.00                                       
      --

Direct
labour                                                
10.0                                       
      --

Factory
overhead                                        
2.00                           
      
     400,000

Non-manufacturing
cost                           
3.00                           
      
     100,000

Total
cost                                                      
24.0                           
       
    500,000

Required:

i. Calculate the breakeven point in rupees and in units. Prove

your answer.
ii. Compute amount of sales required to earn a profit of
Rs.420,000. Prove

Expert Answer
 Anonymous
answered this

4) sales price per unit = 8000000/2000= 4000

Variable cost per unit = 3000000/2000= 1500

Contribution per unit = S.P-VC =4000-1500=2500

Breakeven point in units = fixed cost/contribution per unit

= 2000000/2500

= 800 units

Breakeven points in sales = units * S.P

=800*4000

=3200000

Margin if safety in units = total units sold - break-even

sale

=2000-800

=1200

The margin of safety in sales = 1200*4000

= 4800000

5) S.P per unit = 32

Variable cost = direct material + direct labour

=10+9=19

Contribution per unit = 32-19 =13

Break-even in units =fixed cost/ contribution per unit 500000/13

= 38462 units

Break-even in sales =38462*32 = 1230784

Justification

Sale revenue = 1230784 (as calculated above)

Less:- Variable cost = 730778 (38462*19)

Less fixed cost = 500000

Profit = 0 (hence proved) (diff due to rounding off)

b) sales required to earn desire profit = fixed cost + desired

profit/contribution per unit

= 500000+420000/13

=70770 units

Sales =70770*32= 2264640

Justification

Sales =2264640 (as calculated above)

 Less variable cost 1344630(70770*19)

Less fixed cost 500000

Profit = 420000(hence proved) ( diff due to rounding off)

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