Menlo Company manufactures and sells a single product. The following information has been provided to you: Profit and loss account for the year ended 31 Dec 2017: £ £ £ Sales 3,000,000 Production costs: Direct materials 300,000 Direct labour 1,387,500 Variable overhead 150,000 Fixed overhead 525,000 Total production costs: 2,362,500 Fixed administration overhead 240,000 Selling and distribution costs: Sales commission (2% of sales) 60,000 Variable distribution costs 127,500 Fixed advertising costs 90,000 277,500 2,880,000 Profit 120,000 The company sold 150,000 units last year at a selling price of £20.00 per unit. Required: As the company’s newly appointed management accountant, you are asked to calculate: (d) The effect on breakeven point if the company had to reduce the selling price by 15%. (e) The company is considering changing one of their component parts which will increase the unit variable cost by £2.25. If they hold the selling price constant per unit and make the proposed changes to the variable costs, calculate the number of units that must be sold to breakeven. (f) What is meant by a product’s contribution margin (CM) ratio? How is this ratio useful in planning business operations?
Menlo Company manufactures and sells a single product. The following information has been provided to you: Profit and loss account for the year ended 31 Dec 2017: £ £ £ Sales 3,000,000 Production costs: Direct materials 300,000 Direct labour 1,387,500 Variable overhead 150,000 Fixed overhead 525,000 Total production costs: 2,362,500 Fixed administration overhead 240,000 Selling and distribution costs: Sales commission (2% of sales) 60,000 Variable distribution costs 127,500 Fixed advertising costs 90,000 277,500 2,880,000 Profit 120,000 The company sold 150,000 units last year at a selling price of £20.00 per unit. Required: As the company’s newly appointed management accountant, you are asked to calculate: (d) The effect on breakeven point if the company had to reduce the selling price by 15%. (e) The company is considering changing one of their component parts which will increase the unit variable cost by £2.25. If they hold the selling price constant per unit and make the proposed changes to the variable costs, calculate the number of units that must be sold to breakeven. (f) What is meant by a product’s contribution margin (CM) ratio? How is this ratio useful in planning business operations?
Menlo Company manufactures and sells a single product. The following information has been provided to you: Profit and loss account for the year ended 31 Dec 2017: £ £ £ Sales 3,000,000 Production costs: Direct materials 300,000 Direct labour 1,387,500 Variable overhead 150,000 Fixed overhead 525,000 Total production costs: 2,362,500 Fixed administration overhead 240,000 Selling and distribution costs: Sales commission (2% of sales) 60,000 Variable distribution costs 127,500 Fixed advertising costs 90,000 277,500 2,880,000 Profit 120,000 The company sold 150,000 units last year at a selling price of £20.00 per unit. Required: As the company’s newly appointed management accountant, you are asked to calculate: (d) The effect on breakeven point if the company had to reduce the selling price by 15%. (e) The company is considering changing one of their component parts which will increase the unit variable cost by £2.25. If they hold the selling price constant per unit and make the proposed changes to the variable costs, calculate the number of units that must be sold to breakeven. (f) What is meant by a product’s contribution margin (CM) ratio? How is this ratio useful in planning business operations?
Menlo Company manufactures and sells a single product. The following information has been provided to you:
Profit and loss account for the year ended 31 Dec 2017:
£
£
£
Sales
3,000,000
Production costs:
Direct materials
300,000
Direct labour
1,387,500
Variable overhead
150,000
Fixed overhead
525,000
Total production costs:
2,362,500
Fixed administration overhead
240,000
Selling and distribution costs:
Sales commission (2% of sales)
60,000
Variable distribution costs
127,500
Fixed
advertising costs
90,000
277,500
2,880,000
Profit
120,000
The company sold 150,000 units last year at a selling price of £20.00 per unit.
Required:
As the company’s newly appointed management accountant, you are asked to calculate:
(d) The effect on breakeven point if the company had to reduce the selling price by 15%.
(e) The company is considering changing one of their component parts which will increase the unit variable cost by £2.25. If they hold the selling price constant per unit and make the proposed changes to the variable costs, calculate the number of units that must be sold to breakeven.
(f) What is meant by a product’s contribution margin (CM) ratio? How is this ratio useful in planning business operations?
Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.
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