Malik started a travel luggage company selling only one style of luggage. It has just completed its first year of trading. The summary profit and loss account for the year is set out below: ££Sales (20,000 units) 1,280,000Less: Direct Costs Direct Material360,000 Direct Labour320,000 Direct Expenses80,000 Less: Fixed Expenses Overhead cost541,0001,301,000Net Loss 21,000 The following information is available:all of the direct costs are variable with productionthe production overhead figure does not vary with the output.The company has set a profit objective of £24,000 for year 2. The following suggestion have been made as to how this profit could be achieved.Reduce the selling price by £3 per unit and use a less expensive material that would reduce the direct material cost by £2 per unit RequiredFor the above suggestion, calculate how many units need to be sold to achieve the profit objective of £24,000.

Answer:- Projected profit meaning:- Projected profit is that profit which is generally projected by…

Answered: Malik started a travel luggage company…

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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Malik started a travel luggage company selling only one style of luggage. It has just completed its first year of trading. The summary profit and loss account for the year is set out below:

	£	£
Sales (20,000 units)		1,280,000
Less: Direct Costs
Direct Material	360,000
Direct Labour	320,000
Direct Expenses	80,000

Less: Fixed Expenses
Overhead cost	541,000	1,301,000
Net Loss		21,000

The following information is available:

all of the direct costs are variable with production
the production overhead figure does not vary with the output.

The company has set a profit objective of £24,000 for year 2. The following suggestion have been made as to how this profit could be achieved.

Reduce the selling price by £3 per unit and use a less expensive material that would reduce the direct material cost by £2 per unit

Required

For the above suggestion, calculate how many units need to be sold to achieve the profit objective of £24,000.

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