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The income statement of XYZ Company for the 2016 financial year was below expectations be low Financia l...

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Finance

The income statement of XYZ Company for the 2016 financial yearwas below expectations
be low

Financia l ItemTotal in TZS
Sales (40,000 units)400,000,000
Cost of raw materials80,000,000
Other variable costs100,000,000
Fixed factory overheads160,000,000
Fixed administrative overheads30,000,000
Sales commission (3% sales value)12,000,000
Variable delivery costs20,000,000
Other fixed costs30,000,000

a) What is the break-even point of the company?

b) The company proposes to reduce the selling price per unit by10% and by doing so demand is expected to increase by 25%. Whatwould be profit or loss if this proposal is implemented?

Answer & Explanation Solved by verified expert
4.2 Ratings (853 Votes)

a) Contribution margin = 10,000 - 5300 = 4700

Break even point = Fixed costs/ Contribution margin per unit = 220,000,000 / 4700 = 46809 units (rounded off)

Workings:

Financial Item Per unit
Sales 400,000,000 10000
Variable Costs
Cost of raw materials 80,000,000 2000
Other variable costs 100,000,000 2500
Sales commission (3% sales value) 12,000,000 300
Variable delivery costs 20,000,000 500
Contribution 188,000,000 4,700
Fixed costs:
Fixed factory overheads 160,000,000
Fixed administrative overheads 30,000,000
Other fixed costs 30,000,000
Total fixed costs 220,000,000
Net Income -32,000,000

2.

Financial Item Per unit
Sales 450,000,000 9000
Variable Costs
Cost of raw materials 100,000,000 2000
Other variable costs 125,000,000 2500
Sales commission (3% sales value) 13,500,000 270
Variable delivery costs 25,000,000 500
Contribution 186,500,000 3,730
Fixed costs:
Fixed factory overheads 160,000,000
Fixed administrative overheads 30,000,000
Other fixed costs 30,000,000
Total fixed costs 220,000,000
Net Income -33,500,000

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Transcribed Image Text

The income statement of XYZ Company for the 2016 financial yearwas below expectationsbe lowFinancia l ItemTotal in TZSSales (40,000 units)400,000,000Cost of raw materials80,000,000Other variable costs100,000,000Fixed factory overheads160,000,000Fixed administrative overheads30,000,000Sales commission (3% sales value)12,000,000Variable delivery costs20,000,000Other fixed costs30,000,000a) What is the break-even point of the company?b) The company proposes to reduce the selling price per unit by10% and by doing so demand is expected to increase by 25%. Whatwould be profit or loss if this proposal is implemented?

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