Monday, June 20, 2011

alculate: (i) Break-even sales of the merged plant and the capacity utilization at that stage. (ii) Profitability of the merged plant at 80% capacity utilization. (iii) Sales turnover of the merged plant to earn a profit of Rs. 75 lakhs.


Two manufacturing companies which have the following operating details decide to merge:
Particulars
Company No. 1
Company No. 2
Capacity utilization         %
90
60
Sales             (Rs. Lakhs)
540
300
Variable cost  (Rs. Lakhs)
396
225
Fixed cost      (Rs. Lakhs)
80
50

Assuming that the proposal is implemented calculate: (i) Break-even sales of the merged plant and the capacity utilization at that stage. (ii) Profitability of the merged plant at 80% capacity utilization. (iii) Sales turnover of the merged plant to earn a profit of Rs. 75 lakhs. (iv) When the merged plant is working at a capacity to earn a profit of Rs. 75 lakhs what percentage increase in selling price is required to sustain an increase of 5% in fixed overheads.

Ans:        (i) Break- even point in terms of sales value = Fixed cost * Sales / Contribution
                Merged plant Fixed cost = 80 + 50 = 130 lakhs
                Merged plant variable cost = 621 lakhs
                Merged plant sales = 840 lakhs
                Contribution = Fixed cost + Profit
                Profit = Sales – Total cost
                                =  840 – (130 + 621)
                                = 840 – 751 = 89 lakhs
                           Contribution = 130 + 89 = 219 lakhs
                BE point = 840 = 498.63 lakhs

                (ii) At 90 % capacity utilization sales value of company No.1  = 540 lakhs
                At 100% capacity utilization of company No. 1 sales value = 100 = 600 lakhs
                At 60% capacity    utilization sales value of company No. 2 = 300

At 100% capacity utilization of company No. 2 sales value = 100 = 500

  Merged plant capacity utilization = = 73.33%

At 80% capacity utilization =  = 916.41lakhs

  Profit = Sales value – (FC +VC)
                = 916.41 – 751
                = 165.41 lakhs

(iii) Profit = 75 lakhs
Total cost = 751 lakhs
Sales value = Profit + Total cost
                = 75 + 751 = 826 lakhs

(iv) Profit = 75 lakhs
Increase in fixed price is 5% = 130 +  130*5/100= 136.5 lakhs

Total cost = FC + VC = 621 + 136.5 = 757.5 lakhs
Sales = 75 + 757.5 = 832.5
Increase in sales = 832.5 – 826 = 6.5 lakhs

Percentage increase in selling price = 6.5*100/826 = 0.78%

1 comments:

Unknown said...

why is the capacity not equated when merged and computed BEP?

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updated till june 2011