- 20 Marks
IA – JULY 2020 – L1 – Q7 – Break-Even Analysis and Overhead Allocation
Calculate break-even units and sales revenue; translate percentages to absolute figures and calculate profit after tax; allocate overheads.
Question
The following estimates have been drawn up by AIRTROTRO LIMITED that manufactures three products:
| Engine GHS’000 | Propeller GHS’000 | Cabin GHS’000 | |
|---|---|---|---|
| Cost per unit: | |||
| Materials | 70 | 84 | 66 |
| Labour | 50 | 36 | 10 |
| Packing | 10 | 10 | 84,000 |
| Fixed Costs per year | 120,000 | 70,000 | 150 |
| Selling Price per unit | 170 | 150 | 190 |
You are required to determine:
- The units of each product that must be manufactured and sold by the factory to break-even.
- The total sales revenue of AIRTROTRO LIMITED at break-even point.
b. The accountant of EXCAVATOR ASSEMBLY PLANT determined the following allocation percentages for the various departments – Manufacturing, Selling, and Administration. The Company’s annual sales turnover is GHS 50,000,000.
| Expenditure Item | Expenditure GHS | % Allocation of Expenditure | ||
|---|---|---|---|---|
| Manufacturing (%) | Selling (%) | Administration (%) | ||
| Raw Materials | 25,000,000 | 93 | 10 | 3 |
| Labour | 12,500,000 | 87.5 | 9.5 | 20 |
| Insurance | 750,000 | 35 | 45 | 5.5 |
| Taxes | 1,250,000 | 29.5 | 65 | 11 |
| Depreciation | 7,500,000 | 77 | 12 |
You are required to:
- Translate the percentages (%) into absolute figures (GHS) using the expenditure item as the base.
- Calculate the profit after tax of EXCAVATOR ASSEMBLY PLANT.
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