Solution 1 [Aut-19]

Macchiato Limited
(a)
B/E sale (units) Units
Combined B/E sales [Rs. 65 million (W-1) / Rs. 1,840 (W-2)]
Product-wise: 35,326
Carpets [35,326 x 1/5]
Rugs [35,326 x 4/5] 7,065
28,261
B/E sale (amount)
Carpets [7,065 x Rs. 24,000] Rs. million
Rugs [28,261 x Rs. 4,000] 169.56
Combined 113.04
282.60
Margin of safety
Carpets Rugs Total
------------ Rs. million -----------
Projected sales [12,500 x Rs. 24,000][50,000 x Rs. 4,000] 300.00 200.00 500.00
B/E sales 169.56 113.04 282.60
Margin of safety 130.44 86.96 217.40
------------ units -----------
Margin of safety [MOS / sale price] 5,435 21,740 27,175

W-1 Total fixed costs Rs. million

Total costs [360 + 90] 450.00
Variable costs (W-1.1) (385.00)
65.00

W-1.1
If "U" is the total projected units sale then:

Rs. 24,000 x 1/5 U + Rs. 4,000 x 4/5 U = Rs. 500 million

solving above equation for U: Units
Total units [U] = 62500

Thus product wise units are:

Carpets [62,500 x 1/5]
Rugs [62,500 x 4/5] 12500
50000

Variable costs: Rs. million

Carpets [12,500 x Rs. 24,000 x 75%] 225.00
Rugs [50,000 x Rs. 4,000 x 80%] 160.00
385.00
W-2 Weighted average contribution per unit

= Rs. 24,000 x 25% x 1/5 + Rs. 4,000 x 20% x 4/5

=
1,840.00

[It is assumed that ratio of 1:4 for sale of Carpets and rugs is based on quantities]

(b)
If "Q" shows total target units sale then:
Total sales [24,000 x 1/5 Q + 4,000 x 4/5 Q] = 8,000 Q
Target PBT = 8,000 Q x 0.1 / 0.65
Target contribution = 1,840 Q

CVP equation will be:

Rs. 1,840 Q - Rs. 65 million = Rs. 800 Q/0.65
solving above equation for Q: Units
Q= 106692
Thus product wise units are:
Carpets [106,692 x 1/5] 21338
Rugs [106,692 x 4/5] 85354