Share
Explore BrainMass

Selling Price, Break-Even, Profit/Loss Calculations for Hoi

Selling Price, Break-Even and Profit/Loss Calculations. See attached file for full problem description.

Hoi Poloi plc makes 3 types of filing cabinet, four-drawer, three drawer and two drawer.
The business uses general purpose machines which are equally suitable to be used
in the manufacture of all three products.

Data for the year ended 30 April 2005 was as follows :

four drawer three drawer two drawer
$ $ $

Total sales 410 400 123 900 427 500
Total variable costs 304 000 88 500 285 000
Allocated fixed costs 98 000 48 000 135 000
Profit(loss) 8400 (12 600) 7 500

It had been proposed that the three-drawer cabinet be discontinued,as it was making
a loss.

(a) State whether this proposal should have been agree,giving your reasons.

Sales and cost data for the year ended 30 April 2006 were as follows :

four- drawer three-drawer two-drawer

Sales in units 15 000 6 000 30 000

Raw materials $12 $8 $4
Variable overheads $3 $2 $2
Unit contribution $7 $6 $5

Machine hours per unit 0. 5 0. 5 0 .4

Machine operators are paid $ 10 per hour.
Allocation of fixed costs $ 98 000 $ 48 000 $ 135 000

Required :

( b ) calculate the selling price per unit for each product.
( c ) calculate for each product the break-even point in both units and sales value.
( d ) calculate for each product the profit or loss for the year ended 30 April 2006.

To try to improve profits for the year ending 30 April 2007,it has been suggested that a
better quality,more easily worked, raw material be purchased. This would increase the
cost of raw materials by five percent ( 5 % ) but would offer savings of ten percent ( 10 %)
on labour. Sales and other costs would remain unchanged.
(e) calculate for each product and in total the profit or loss if this suggestion is put
into effect.

Attachments

Solution Preview

Hoi Poloi plc makes 3 types of filing cabinet,four- drawer, three drawer and two drawer.
The business uses general purpose machines which are equally suitable to be used
in the manufacture of all three products.

Data for the year ended 30 April 2005 was as follows :

four drawer three drawer two drawer
$ $ $

Total sales 410 400 123 900 427 500
Total variable costs 304 000 88 500 285 000
Allocated fixed costs 98 000 48 000 135 000
Profit(loss) 8400 (12 600) 7 500

It had been proposed that the three-drawer cabinet be discontinued,as it was making
a loss.

(a) State whether this proposal should have been agree,giving your reasons.

If we discontinue the three drawer, we assume that fixed cost would remain the same.

four drawer three drawer two drawer
$ $ $

Total sales 410 400 0 427 500
Total variable costs 304 000 0 285 000
Allocated fixed costs 98 000 48 000 135 000
Profit(loss) 8400 -48,000 7 500

It should not be discontinued because the loss has increased from 12,600 to 48,000.

Sales and cost data for the year ended 30 April ...

Solution Summary

This solution is comprised of a detailed explanation and calculation to answer the selling price, break-even, and profit/loss calculations for Hoi Poloi Plc.

$2.19