[sakti]

EY co. is selling furniture, profit and loss during 1991 is shown :

sales 2000 x $4000 $ 8,000,000
less : variable cost
cost per unit 2,000 x $2,500 $(5,000,000)
commission fee 2,000 x $250 $ ( 500,000)
______________
contribution margin $ 2,500,000

Less : fixed cost
Rental fee $ 720,000
wages $200,000
advertising $100,000
other expenses $ 50,000 $( 1,070,000)
_____________
$ 1,430,000

question :

a. during 1991, owner plans to mark up sale for each furniture for 25%, commission fee is omitted and wages is increased by $ 2,000,000 how does it affect Trading and Profit&Loss account?

b. If during 1991, owner plans to produce Net Profit of $ 2,000,000 and fixed cost is remaining the same, how many of furniture should be sold out?




please help out this hw. Thankssssss alottt

[rehmanvohra]

Your question needs further information:
1. Increase in sale 25% - is it in terms of quantity or sale price? If sale price, how does it affect the current unit sales?
Try and work out the incremental costs and revenues and you should get the answer.
2. Assuming this part is independent and does not affect any of the items of the question, try the following formula:
Contribution = Desired profit + Fixed costs
Number of units sold = Contribution margin/per unit contribution

[sakti]

my answer for this question. Please correct it

question A

sales 8,000,000 x 25% 10,000,000
cost/unit 2,000 x 2,500 (5,000,000)
contribution margin (5,000,000)

less : fixed cost

rental fee 720,000
wages 400,000
advertising 100,000
other exp 50,000
(1,270,000)

net profit 3,730,000



question b

net profit $ 2,000,000

fixed cost $ 1,070,000

furniture = 2,000,000 + 1,070,000 : 2,000
= 1535 units

[rehmanvohra]

my answer for this question. please correct it

question A

sales 8,000,000 x 25% 10,000,000
cost/unit 2,000 x 2,500 (5,000,000)
contribution margin (5,000,000)

less : fixed cost

rental fee 720,000
wages 400,000
advertising 100,000
other exp 50,000
(1,270,000)

net profit 3,730,000



question b

net profit $ 2,000,000

fixed cost $ 1,070,000

furniture = 2,000,000 + 1,070,000 : 2,000
= 1535 units

Answer a is correct
Answer b is incorrect
You got the contribution right but you divided this contribution by the current units sold instead of the contribution margin per unit. The present profit is $1,070,000 when 2000 units are sold. How can you achieve a profit of $2,000,000 by selling 1535 units? Obviously, the desired units should be more than 2000 units.

The correct approach is:
1. Calculate contribution margin per unit: $2,500,000/2000 units = $1,250 per unit
2. Calculate desired sale: $3,070,000/$1,250 = 2456 units

Proof:
Contribution 2456 units x $1,250 = 3,070,000
Less: Fixed costs per question $1,070,000
Net profit $2,000,000