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Homework answers / question archive / The following information relates to La Rouge Perfumes Ltd: Selling price per bottle $225 Variable costs per bottle: Direct material $70 Direct Labour $35 Manufacturing Overhead $15 Selling costs $20 Total variable costs per bottle $140 Annual fixed costs: Manufacturing Overhead 250,000 Selling and Administrative 250,000 Total Fixed costs 500,000 Forecast annual sales (8500)1912500 NB: As you can't manufacture part of a unit please round your answers up
The following information relates to La Rouge Perfumes Ltd:
Selling price per bottle $225
Variable costs per bottle:
Direct material $70
Direct Labour $35
Manufacturing Overhead $15
Selling costs $20
Total variable costs per bottle $140
Annual fixed costs:
Manufacturing Overhead 250,000
Selling and Administrative 250,000
Total Fixed costs 500,000
Forecast annual sales (8500)1912500
NB: As you can't manufacture part of a unit please round your answers up.
1) Break even point in units for La Rouge Perfumes Ltd: (Enter amount only, do not use decimal points or commas)
2) Break-even point in sales dollars for La Rouge Perfumes Ltd:(Enter amount only, do not use dollar signs, decimal points or commas)
3) How many bottles would La Rouge Perfumes have to sell in order to earn a profit of $795,000? (Enter amount only, do not use decimal points, dollar signs or commas)
4) What is the firm's Safety Margin? (Enter amount only, do not use dollar signs , decimal points or commas)
5) How many bottles would La Rouge Perfumes have to sell in order to earn a profit of $795,000 after tax? Assume La Rouge Perfumes pays income tax of 30% ? (Enter amount only, do not use dollar signs, decimal points or commas)
6) Management of La Rouge Perfumes estimates that the variable manufacturing overhead costs will increase by 10% next year. How many units will the company have to sell next year to reach break-even point? (Enter amount only, do not use dollar signs, decimal points)
1) Computation of the break even point in units:-
Contribution margin per unit = Selling price per unit - Variable costs per unit
= 225 - 140
= 85 per unit
Break even point in unit = Fixed cost / Contribution margin per unit
= 500000 / 85
= 5882 bottles
2) Computation of the break even point in sales dollars:-
Contribution margin ratio = Contribution margin per unit / Selling price per unit
= 85 / 225
= 38%
Break even point in sales dollars = Fixed cost / Contribution margin ratio
= 500000 / 38%
= 1323529
3) Computation of the break even point in units:-
Break even point in units = (Fixed cost + Desired profit) / Contribution margin per unit
= (500000 + 795000) / 85
= 1295000 / 85
= 15235 bottles
4) Computation of the safety margin:-
Safety margin = (Current sales level - Break even sales) / Break even sales
= (8500 - 5882) / 8500
= 2618 / 8500
= 31%
5) Computation of the break even point in units:-
Desired profit = 795000 / (1 - 30%)
= 1135714
Break even sales in units = (Fixed cost + Desired profit) / Selling price per unit
= (500000 + 1135714) / 85
= 1635714 / 85
= 19244 bottles
6) Computation of the break even point in units:-
Variable cost = Direct materials + Direct labor + Variable manufacturing overhead + Selling costs
= 70 + 35 + (15*(1+10%)) + 20
= 105 + 17 + 20
= 142
Contribution margin per unit = Selling price per unit - Variable cost per unit
= 225 - 142
= 84
Break even point in units = Fixed cost / Contribution margin per unit
= 500000 / 84
= 5988 bottles
