Reference no: EM132638908
Founded in 1993, Lucky Cement Limited stands as the flagship company of Yunus Brothers Group (YBG). Lucky Cement is the largest producer of Cement in Pakistan with production capacity of 12.15 MTPA and remains one of the country's leading exporters of quality cement. Lucky Cement is listed on the Pakistan Stock Exchange (PSX). The Company has also issued Global Depository Receipts (GDRs), listed and traded on the Professional Securities Market of the London Stock Exchange and is the first Shariah Compliant Company of Pakistan certified by the SECP.
The Profit and Loss Statement of Lucky Cement Limited for last three years is presented below:
2019 2018 2017
Quantity Sold (In tons) 7670000 7760000 6850000
Net Sales 48021399000 47541724000 45687043000
Less: Cost of Sales (34037568000) (30589363000) (24388760000)
Gross Profit 13983831000 16952361000 21298283000
Less: Operating Expenses
Distribution Cost (2728809000) (1992454000) (1703785000)
Administrative Expenses (1227872000) (1089466000) (1021694000)
Other Expenses (1047617000) (1346369000) (1788023000)
Profit Before Taxation 8979533000 12524072000 16784781000
Based on the expected adverse PKR exchange rate parity and higher inflation rate the management of Lucky Cement Limited forecasted that the variable and fixed portion of all costs is expected to increase by 10% and 5% respectively in the following year (2020). However the management also expects that the initiatives taken by federal government to facilitate construction industry will increase the demand of cement in the country. The Sales volume of the company is expected to increase by 10%.
Problem 1: Based on the above information calculate cost behavior (i.e. fixed and variable costs) of cost of sales, distribution cost, admin expenses and other expenses. (use high-low method)?
Problem 2: If price is set on the basis of following cost-plus pricing strategies, what would be the expected sales price per ton for the year 2020? (Your calculation must consider the management's forecast regarding changes in the
1-cost for the year 2020)
2-Cost of Sales plus 40%
3-Total cost plus 15%
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