A summary of a manufacturing company's budgeted profit statement for its next financial year, when it expects to be operating at 75 percent of capacity, is given below: Omani RialOmani Rials Sales 4,500 units at Omani Rials 32 144,000 Less: Direct Materials 27,000 Direct wages 36,000 Production overheads- -Fixed 21,000 -Variable 9,000 (93,000) Gross profit 51,000 Less: Admin., selling and distribution costs: -Fixed 18,000 -Variable 13,500 (31.500) Net profit 19,500 it has been estimated that: i. if the selling price per unit were reduced to Omani Rials 28, the increased demand would utilise 90 percent of the company's capacity without any additional advertising expenditure; ii. to attract sufficient demand to utilise full capacity would require a 15 percent reduction in the current selling price and a Omani Rials 2,500 special advertising campaign. Required: 1. Calculate the breakeven point in units, based on the original budget; 2. Calculate the profits and breakeven points which would result from each of the two alternatives and compare them with the original budget.

A summary of a manufacturing company's budgeted profit statement for its next financial year, when it expects to be operating at 75 percent of capacity, is given below: Omani RialOmani Rials Sales 4,500 units at Omani Rials 32 144,000 Less: Direct Materials 27,000 Direct wages 36,000 Production overheads- -Fixed 21,000 -Variable 9,000 (93,000) Gross profit 51,000 Less: Admin., selling and distribution costs: -Fixed 18,000 -Variable 13,500 (31.500) Net profit 19,500 it has been estimated that: i. if the selling price per unit were reduced to Omani Rials 28, the increased demand would utilise 90 percent of the company's capacity without any additional advertising expenditure; ii. to attract sufficient demand to utilise full capacity would require a 15 percent reduction in the current selling price and a Omani Rials 2,500 special advertising campaign. Required: 1. Calculate the breakeven point in units, based on the original budget; 2. Calculate the profits and breakeven points which would result from each of the two alternatives and compare them with the original budget.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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