Trendy Trendy makes four products; it is always concerned that it might not make a profit as the material cost and quantity available depend on the size of a crop harvest. Details of its products are as follows: Product Budget Selling price Labour per unit Material per unit (units) (£) (£) (kg) T 200 80 30 2.00 R 500 25 10 0.50 E 300 30 13 1.00 N 700 60 25 3.00 Fixed costs are expected to be £20,000 and material currently costs £3 per kg. Required: Using the current price of material, calculate the break-even point in sales revenue and the margin of safety, assuming Trendy sells in the same ratio as budgeted.
Trendy Trendy makes four products; it is always concerned that it might not make a profit as the material cost and quantity available depend on the size of a crop harvest. Details of its products are as follows: Product Budget Selling price Labour per unit Material per unit (units) (£) (£) (kg) T 200 80 30 2.00 R 500 25 10 0.50 E 300 30 13 1.00 N 700 60 25 3.00 Fixed costs are expected to be £20,000 and material currently costs £3 per kg. Required: Using the current price of material, calculate the break-even point in sales revenue and the margin of safety, assuming Trendy sells in the same ratio as budgeted.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Trendy
Trendy makes four products; it is always concerned that it might not make a profit as the material cost and quantity available depend on the size of a crop harvest.
Details of its products are as follows:
|
Product |
Budget |
Selling price |
Labour per unit |
Material per unit |
|
|
(units) |
(£) |
(£) |
(kg) |
|
T |
200 |
80 |
30 |
2.00 |
|
R |
500 |
25 |
10 |
0.50 |
|
E |
300 |
30 |
13 |
1.00 |
|
N |
700 |
60 |
25 |
3.00 |
Fixed costs are expected to be £20,000 and material currently costs £3 per kg.
Required:
- Using the current price of material, calculate the break-even point in sales revenue and the margin of safety, assuming Trendy sells in the same ratio as budgeted.
- Determine the production plan which breaks even with the least amount of material and find this amount.
- If the cost of material rises by 20%, explain what will happen to the margin of safety?
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