Answer:
a) Calculate Break-even Point in sales revenue and number of shirts sold.
- 20,000 shirts
- $16,000,000
b) What is the margin of safety of the dealer expressed as a percentage .
c) Assume that 30, 000 shirts were sold during the year, find out the net profit of the firm.
d) Assuming that in the coming year, an additional staff salary of P1,000, 000 is anticipated, and price of shirt is likely to be increased by 15%, what should be the break-even point in number of shirts and sales?
- 15,625 shirts
- $14,375,000
e) If taxation rate is 12.5%, and fixed cost increase to 6 000 000 what is the level of sales that must be achieved to a targeted profit of P8 000 000.
Explanation:
selling price per shirt $800 x 24,000 = $19,200,000
variable cost per shirt $600 x 24,000 = $14,400,000
total fixed costs $4,000,000
net income $800,000
contribution margin per unit = $800 - $600 = $200
break even point = $4,000,000 / $200 = 20,000 shirts x $800 = $16,000,000
margin of safety = (current sales - break even point) / current sales = ($19,200,000 - $16,000,000) / $19,200,000 = 16.67%
if 30,000 shirts were sold:
contribution margin 30,000 x $200 = $6,000,000
fixed costs $4,000,000
net income $2,000,000
if sales price increases to $920, contribution margin = $320
fixed costs increase to $5,000,000
break even point = $5,000,000 / 320 = 15,625 shirts x $920 = $14,375,000
fixed costs increase to %6,000,000
targeted profit $8,000,000 + tax rate = $9,142,857
sales target = ($6,000,000 + $9,142,857) / $320 = 47,321.43 ≈ 47,322 shirts
