Marketing and Selling Overheads
Anhad Sdn. Bhd. manufactures car alarms, and its trading results for the year ended 31 October 2013 are as follows: RM'000 RM'000 Sales (800,000 alarms) 7,200 Costs:
Materials: direct, variable 1,600
Labour: direct, variable 960
Labour: indirect, fixed 280
Other production overheads: variable 400
Other production overheads: fixed 640
Selling overheads: variable 480
Selling overheads: fixed 360
Distribution overheads: variable 280
Distribution overheads: fixed 120
Administration overheads: fixed 600 (5,720)
Net profit for the year 1,480
Anhad is planning next year’s activity and its forecasts for the year ended 31 October 2014 are as follows:
1. A reduction in selling price per car alarm to RM8 per alarm is expected to increase sales volume by 50%.
2. Materials costs per unit will remain unchanged, but 5% quantity discount will be obtained.
3. Hourly direct wage rates will increase by 10%, but labour efficiency will be unchanged.
4. Variable selling overheads will increase in total in line with the increase in sales revenue.
5. Variable production and distribution overheads will increase in line with the 50% increase in sales volume.
6. All fixed costs will increase by 25%.
You are required to do the following:
a) Prepare a budgeted profit statement for the year to 31 October 2014 showing total sales and marginal costs for the year and also contribution and net profit per unit.
(16 marks)
b) Calculate the break-even point for the two years and explain why the break-even point has changed. Comment on the margin of safety in both years.
(13 marks)
c) Calculate the sales volume required (using the new selling price) to achieve the same profit in 2014 and in 2013.
(3 marks)
d) A director comments that ‘with these figures, all we have to do to work out our budgeted profit is to multiply the net profit per unit by the units we want to sell”. Why is this statement incorrect?
Materials: direct, variable 1,600
Labour: direct, variable 960
Labour: indirect, fixed 280
Other production overheads: variable 400
Other production overheads: fixed 640
Selling overheads: variable 480
Selling overheads: fixed 360
Distribution overheads: variable 280
Distribution overheads: fixed 120
Administration overheads: fixed 600 (5,720)
Net profit for the year 1,480
Anhad is planning next year’s activity and its forecasts for the year ended 31 October 2014 are as follows:
1. A reduction in selling price per car alarm to RM8 per alarm is expected to increase sales volume by 50%.
2. Materials costs per unit will remain unchanged, but 5% quantity discount will be obtained.
3. Hourly direct wage rates will increase by 10%, but labour efficiency will be unchanged.
4. Variable selling overheads will increase in total in line with the increase in sales revenue.
5. Variable production and distribution overheads will increase in line with the 50% increase in sales volume.
6. All fixed costs will increase by 25%.
You are required to do the following:
a) Prepare a budgeted profit statement for the year to 31 October 2014 showing total sales and marginal costs for the year and also contribution and net profit per unit.
(16 marks)
b) Calculate the break-even point for the two years and explain why the break-even point has changed. Comment on the margin of safety in both years.
(13 marks)
c) Calculate the sales volume required (using the new selling price) to achieve the same profit in 2014 and in 2013.
(3 marks)
d) A director comments that ‘with these figures, all we have to do to work out our budgeted profit is to multiply the net profit per unit by the units we want to sell”. Why is this statement incorrect?