Problem 62A Part Level Sussion Lerge expenses S250000 40 vw

Problem 6-2A (Part Level Sussion Lerge expenses S250.000 (40% vw able and 60% foedh ct materuls$1,131.400; drect labor $250,000 ndac?--d and nun ting o head S378.000 (70% variable and 30-hed. Too manage ent has ailed m to do a CNP analys. so that it can Nke ples fer re coung year. It that nt ales wil ncrease by 10% net year

Solution

Target profit = 15600 ( Ref to workings below solution)

CM Ratio = 20% (,,)

MOS = Margin of safety = Target Profit / CM Ratio = 15600 / 0.2 = 78000

MOS Ratio = MOS / Sales * 100 = 78000 / 2475000 * 100 = 3.15% .......... Final answer

Note : Here Target profit is 15600, which is acheived when unit sales increase by 10%. Kindly check if a different amount is given in question.If so put that number in the place of 15600

Workings are done as under

Fixed cost is computed as under

Note: In the above table, Material, labor costs are multiplied with 1.10 to adjust for increased unit sales by 10%. Similar adjustments are also done to variable portion of selling, admin, manufacturing overheads to increase the variable cost by 10%

Sales in Unit sales	99000
Selling Price	25
Total sales	2475000
(-) Variable cost
Material	1244540
Labor	275000
Selling exp ( variable)	110000
Administrative *variable)	59400
Manufacturing (variable)	291060
Total variable cost	1980000
Contribution margin	495000
CM ratio = C/S * 100	20
Target Profit	15600
CM - Fixed cost