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Homework answers / question archive / QUESTION ONE Bernie ltd
QUESTION ONE
Bernie ltd. is a newly organized manufacturing business that plans to manufacture and sell 100,000 units
per year of a new product. The following estimates have been made of the company's costs and
expenses (other than income taxes):
Variable
Fixed per Unit
Manufacturing costs:
Direct materials 50
Direct labor 40
Manufacturing overhead Sh. 600,000 10
Period expenses:
Selling expenses 25
Administrative expenses 400,000 ____
Totals Sh.1,000,000 Sh.125
Required:
a. What should the company establish as the sales price per unit if it sets a target of earning an
operating income of Sh.400, 000 by producing and selling 100,000 units during the first year of
operations? (8 marks)
b. At the unit sales price computed in part a, compute the breakeven point. (6 marks)
c. Compute the margin of safety if the company produces and sells 100,000 units at the sales price
computed in part a? (4 marks)
d. Assuming a tax rate of 25% and the selling price computed at a, compute the sales revenue required
to earn an after tax profit of Sh.375, 000. (7 marks)
