question archive The HASF Ink Ltd income statement for the preceding year is presented below except as noted the cost/revenue relationship for the coming year is expected to follow the same pattern as in the preceding year income statement for the year ending March 31 is as follow s Sales (200,000 units @ 2
The HASF Ink Ltd income statement for the preceding year is presented below except as noted the cost/revenue relationship for the coming year is expected to follow the same pattern as in the preceding year income statement for the year ending March 31 is as follow s Sales (200,000 units @ 2
Subject:AccountingPrice:2.84 Bought6
The HASF Ink Ltd income statement for the preceding year is presented below except as noted the cost/revenue relationship for the coming year is expected to follow the same pattern as in the preceding year income statement for the year ending March 31 is as follow s
Sales (200,000 units @ 2.5 Each) Rs. 5, 00,000
Variable cost 3, 00,000
Contribution margin 2, 00,000
Less Fixed cost 100,000
Profit before tax 100,000
Less tax 35,000
Profit after tax 65,000
Required
The company management feels that it should earn at least Rs.10, 000 pre taxes per annum on the new investment what sales volume is required to enable the company to maintain an existing profit.
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| PARTICULARS | AMOUNT (IN RS.) |
| Sales (200,000 units @ 2.5 Each) - A | 500,000 |
| Variable cost (200,000 units @ 1.5 Each) - B | 300,000 |
| Contribution margin = C = A-B | 200,000 |
| FIXED COST - D | 100,000 |
| PROFIT BEFORE TAX = E= C-D | 100,000 |
| TAXES (@35% ON 100,000) | 35,000 |
| PROFIT AFTER TAX = F= E - TAXES | 65,000 |
| IN OUR CASE, FIXED COST IS 100,000 AND | |
| CONTRIBUTION PER UNIT = SELLING COST PER UNIT - VARIABLE COST PER UNIT = 2.5 - 1.5 = 1.00 PER UNIT | |
| DESIRED PROFIT (BEFORE TAX) = EXISITING PROFIT + MINIMUM PROFIT FROM INVESTMENTS = 100,000 + 10,000 = 110,000 | |
| FORMULA:- | |
| REQUIRED SALES (IN UNITS) IN ORDER TO EARN DESIRED PROFIT: (FIXEDCOST+ DESIRED PROFIT) / CONTRIBUTION PER UNIT | |
| PUTTING VALUES IN FORMULA, | |
| (110,000 + 100,000) /1.00 = 210,000 (UNITS) | |
| SO, THE REQUIRED SALES (VOLUME) IN ORDER TO EARN DESIRED PROFIT IS 210,000 (UNITS) |
