Learning Objective: Students will be able to to learn and apply the cost-volume-profit analysis.
Scenario:
Modern Industries (PVT) Ltd. manufactures basketballs and sells them across the country. The company’s management is desirous to boost-up the yearly profits and considering a change in the sales price of its products in this regard. The company’s management accountant has developed following information using the recent year’s published accounts:
TOTAL
UNITS
Sales (200 units)
Rs. 30,000
Rs.150.00
Variable cost
17,500
087.50
Contribution margin
12,500
62.500
Fixed cost
5,000
Profit before tax
7,500
The management accountant believes that a 10% reduction in selling price would increase the sales volume by 30%.
Required: Analyze the above information carefully and answer the following assuming no change in the fixed cost:
i) Change in the net sales;
ii) Change in the contribution margin in total & per unit;
iii) Change in per unit net profit assuming 40% tax rate;
iv) Would you recommend the proposed sale price and why?
Important Instructions:
1. The GDB will remain open for 3 working days/ 72 hours.
2. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
3. Obnoxious or ignoble answer should be strictly avoided.
4. Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.
Ø For Detailed Instructions please see the GDB Announcement
Dear, variable cost varies number of units produced. In case of a single unit, it remains same. So, in this case it will remain Rs. 87.5
Hope u must have got some idea.
1 is 35100 net sale
2 is 12350 and per unit is47.50 ..
3rd 16.9 per unit profit
4 , your own word