Question 3

A summary of a manufacturing companys profit statement for its financial year, when it is operating at 80% of capacity is given below.

Sales 10,000units 320,000

Less:

Direct materials 60,000

Direct wages 80,000

Production overhead:

Fixed 42,000

Variable 20,000

202,000

Gross profit ?

Less:

Admin,selling& distrition cost:

Fixed 36,000

Varying with sales volume 30,000

66,000

Net profit ?

Required

a) Establish the Break Even point

b) What is the Variable cost of the company at the breakeven point

c) Management plans to operate at full capacity, estimate the margin of safety of the company.