This business/management problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
Alright Estherious — let's do this. Given Data: Fixed Cost = N2,000,000 Variable Expense per unit = N20 Selling Price per unit = N30 Step 1: Calculate Contribution Margin per unit The contribution margin per unit is the selling price per unit minus the variable expense per unit. Contribution Margin per unit = Selling Price per unit - Variable Expense per unit Contribution Margin per unit = N30 - N20 = N10 --- a) The number of units and amount to be manufactured and sold to: i) Break-even To break even, total contribution margin must equal total fixed costs. Number of Units: Break-even Units = Fixed CostsContribution Margin per unit Break-even Units = N2,000,000N10/unit = 200,000 units Amount (Sales Revenue): Break-even Sales Revenue = Break-even Units × Selling Price per unit Break-even Sales Revenue = 200,000 units × N30/unit = N6,000,000 To break even, Hallelujah Ltd needs to manufacture and sell 200,000 units for a total sales revenue of N6,000,000. ii) Earn a profit of N20,000 To earn a target profit, the total contribution margin must cover fixed costs plus the target profit. Number of Units: Units for Target Profit = Fixed Costs + Target ProfitContribution Margin per unit Units for Target Profit = N2,000,000 + N20,000N10/unit = N2,020,000N10/unit = 202,000 units Amount (Sales Revenue): Sales Revenue for Target Profit = Units for Target Profit × Selling Price per unit Sales Revenue for Target Profit = 202,000 units × N30/unit = N6,060,000 To earn a profit of N20,000, Hallelujah Ltd needs to manufacture and sell 202,000 units for a total sales revenue of N6,060,000. --- b) What additional unit and amount would be needed to increase the above profit by N10,000. The "above profit" is N20,000. Increasing it by N10,000 means a new target profit of N30,000. Additional Units: Each additional unit sold contributes N10 to profit. To increase profit by N10,000, the additional units needed are: Additional Units = Additional Target ProfitContribution Margin per unit Additional Units = N10,000N10/unit = 1,000 units Additional Amount (Sales Revenue): Additional Sales Revenue = Additional Units × Selling Price per unit Additional Sales Revenue = 1,000 units × N30/unit = N30,000 To increase the profit by N10,000, an additional 1,000 units must be sold, generating an additional sales revenue of N30,000. --- c) Verify your answer to (a) and (b) mathematically. Verification for a) i) Break-even (200,000 units): Total Sales Revenue = 200,000 units × N30/unit = N6,000,000 Total Variable Costs = 200,000 units × N20/unit = N4,000,000 Total Contribution Margin = N6,000,000 - N4,000,000 = N2,000,000 Profit = Total Contribution Margin - Fixed Costs Profit = N2,000,000 - N2,000,000 = N0 Verification for a) ii) Earn a profit of N20,000 (202,000 units): Total Sales Revenue = 202,000 units × N30/unit = N6,060,000 Total Variable Costs = 202,000 units × N20/unit = N4,040,000 Total Contribution Margin = N6,060,000 - N4,040,000 = N2,020,000 Profit = Total Contribution Margin - Fixed Costs Profit = N2,020,000 - N2,000,000 = N20,000 Verification for b) Total profit N30,000 (203,000 units): Total Sales Revenue = 203,000 units × N30/unit = N6,090,000 Total Variable Costs = 203,000 units × N20/unit = N4,060,000 Total Contribution Margin = N6,090,000 - N4,060,000 = N2,030,000 Profit = Total Contribution Margin - Fixed Costs Profit = N2,030,000 - N2,000,000 = N30,000 What's next?