90.2K

Verified Solution

Link Copied!

Break Even Question Nuts and Bolts & Co Income statement for the year ended D31 December 2020 2020 % of Sales Sales revenue 25,000,000 100% Variable expenses 17,000,000 68.0% CoG 13,750,000 55.0% Commission 1,250,000 5.0% Royalties 1,500,000 6.0% Transport 250,000 1.0% Cash discounts 125,000 0.5% Consumables 125,000 0.5% Gross Profit 8,000,000 32.0% Fixed expenses 3,090,000 Depreciation 100,000 Insurance 200,000 Rent 600,000 Salary, manager 800,000 Wages 636,000 Electricity & water 54,000 Equipment hire 160,000 Subscriptions 150,000 Advertising 390,000 Profit Before Tax 4,910,000

Answer the following questions: 1. What would be the effect on the 2021 Profit Before Tax of Nuts and Bolts & Co if the sales increased by 18% while the ratio of variable expenses to sales and the amount of fixed expense remained unchanged? 2. What would be the effect on the 2021 Profit Before Tax if the existing manager were to retire and was replaced by a new manager for a salary of R820,000 per year? (Apply this information to this question only). 3. What could sales decline to before operations resulted in a net loss, assuming that the ratio of variable expenses to sales and the amount of fixed expense remained unchanged? 4. If Nuts and Bolts & Co wanted to achieve a net profit of R1,500,000 in 2021 and all the other factors are expected to behave as they did in 2020, what sales would be needed? 5. What would the break-even (expressed in sales) be if the gross profit percentage were reduced from 32% to 25%?

Answer & Explanation Solved by verified expert

See Answer