Answer:
1. Variable Fixed
Cost of goods sold 70,000,000 30,000,000
Selling Expenses 12,000,000 4,000,000
Administrative Exp. 6,000,000 6,000,000
Total 88,000,000 40,000,000
Note:
Cost of goods sold 70% 30% on 10,000,000 for variable and Fixed respectively
Selling expenses 75% 25% on $16,000,000 for variable and Fixed respectively
Administrative expenses 50% 50% on $12,000,000 for variable and Fixed respectively
2. Unit Variable cost = Total variable cost / Units produced
Total Variable cost 88,000,000
Unit produced <u>1,000,000</u>
Unit variable cost <u> 88 </u>
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Unit Contribution margin = Selling Price - Variable cost per unit
Selling Price $188
- Variable cost per unit <u>$88</u>
Unit Contribution margin <u>$100</u>
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3. Break even Point (Units) = Fixed cost / Contribution margin per unit
Fixed cost 40,000,000
Contribution margin per Unit <u> 100 </u>
Break even Point (Units) <u>400,000</u>
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4. Break even point (units) = Fixed cost / Contribution margin per unit
Fixed cost 40,000,000
Increased Fixed cost <u>5,000,000</u>
Total New fixed cost 45,000,000
Contribution margin per unit <u> 100 </u>
Break even point (units) <u>450,000</u>
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5. Determined sales units = (New fixed cost + Desired Income) / Contribution margin
New Fixed Cost 45,000,000
Desired Income <u>60,000,000</u>
105,000,000
Contribution margin <u> 100 </u>
per unit
Determined sales units <u> 1,050,000</u>
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6. Maximum Income from operation = Total New sales - Total New variable cost - Total Fixed cost
Sales 188,000,000
Increased sales <u>11,280,000</u>
Total New sales 199,289,000
Variable cost 88,000,000
New Variable cost 5,280,000
Total New Variable cost 93,280,000
Total New Fixed cost <u>45,000,000</u>
Maximum Income from <u>61,000,000</u>
operation
Number of units = Increase in sales / Price per unit
New variable cost = Number of units * Unit variable cost
Increased sales 11,280,000
Price per unit <u> 188 </u>
Number of units 60,000
Unit variable cost x <u>88.00</u>
New Variable cost <u>5,280,000</u>
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7. Net income = Sales - Variable cost - New fixed cost
Sales 188,000,000
Less: Variable cost 88,000,000
Less: New fixed cost <u>45,000,000</u>
Net Income <u>55,000,000</u>
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8. Option b. In favour of the proposal because of the possibility of increasing income from operation.
