Reference no: EM133042489
Question - Bonanza Company is in business since last many years, which is manufacturing swimming suits for professionals. Analysis of the company's financial record for the current year indicates the following:
Average Selling price per swim suit Rs. 700
Variable cost per swim suit:
Direct material Rs. 280
Direct Labour Rs. 120
Variable Overheads Rs. 55
Annual fixed cost:
Administrative Rs. 250,000
Selling Rs. 100,000
Required -
1. Compute the contribution margin ratio and contribution margin per unit.
2. Compute the breakeven sales revenues and breakeven sales in units.
3. If the company desires to earn a profit of Rs. 210,000 per annum, compute the sales revenues and sale units to achieve the target profit.
4. The company is considering to purchase a faster sewing machine that will save Rs. 35 per swim suit in labour cost but will raise annual fixed cost by Rs. 50,000 on depreciation. The new sewing machine requires capital investment of Rs. 500,000 and has 10 years useful life. Should the company switch over to new sewing machine? Draw your recommendations supported by statistical computation.
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