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Calculate the number of Type-A and Type-B products

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Reference no: EM133081433

Question - Luka Manufacturing Company (LMC) commenced operations in 2021 and started producing two types of products: Type-A and Type-B for local sales in Victoria. The market is highly competitive, and the company is keen to maximize its profitability by using cost-volume-profit (CVP) techniques. You are hired by LMC to work as a part-time accountant. The cost accountant of the company has complied relevant data from the annual budget for the year ended 31 December 2021 to assist you complete your task.

 

Model-1

Model-2

Budgeted annual sales units

1,500

2,500

Budgeted sales price per unit

$520

$800

Budgeted variable manufacturing cost per unit

$320

$460

Budgeted variable Selling & Admin. Cost per unit

$100

$150

Annual Fixed Costs:

Fixed Manufacturing cost $220,000

Fixed Selling & Admin cost $80,000

Required -

1. Calculate the number of Type-A and Type-B products that LMC should produce and sell to reach break-even point in 2021.

2. Compute the safety margin in units for the year 2021. Explain the importance of knowing or calculating safety margin.

3. How many units of Type-A and Type-B products should the company sell to earn before tax profit of $43,750 in 2021?

4. Explain factors that affect the design of appropriate organizational structure.

Reference no: EM133081433

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