RS Ltd. manufactures and sells a single product X whose selling price is 100 per unit and the variable cost is 60 per unit. (i) If the Fixed Costs…

CA Intermediate · Cost and Management Accounting · RTP · September 2024
RS Ltd. manufactures and sells a single product X whose selling price is 100 per unit and the variable cost is 60 per unit. (i) If the Fixed Costs for this year are - 24,00,000 and the annual sales are at 60% margin of safety, CALCULATE the rate of net return on sales, assuming an income tax level of 40% (ii) For the next year, it is proposed to add another product line Y whose selling price would be 150 per unit and the variable cost 100 per unit. The total fixed costs are estimated at 28,00,000. The sales mix of X : Y would be 5 : 3. COMPUTE the break-even sales in units for both the products.

Suggested Answer and Working Notes:

17. (i) Or, 60% = (Actual Sales - 60,000 units) / Actual Sales ∴ Actual Sales = 1,50,000 units (₹) Sales Value (1,50,000 units × 100) 1,50,00,000 Less: Variable Cost (1,50,000 units × 60) (90,00,000) Contribution 60,00,000 Less: Fixed Cost (24,00,000) Profit 36,00,000 Less: Income Tax @ 40% (14,40,000) Net Return 21,60,000 Rate of Net Return on Sales = (₹ 21,60,000 /1,50,00,000) × 100 = 14.40% (ii) Products X (₹) Y (₹) Selling Price per unit 100 150 Variable Cost per unit 60 100 Contribution per unit 40 50 Composite contribution will be as follows: Contribution per unit = (40 × 5/8) + (50 × 3/8) = 25 + 18.75 = 43.75 Break-even Sale = 28,00,000 /43.75 = 64,000 units Break-even Sales Mix: X (64,000 units × 5/8) = 40,000 units Y (64,000 units × 3/8) = 24,000 units

Topics: Marginal Costing

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