The contribution profit statement for Renton Ltd presented below represents operating results for the last...
80.2K
Verified Solution
Link Copied!
Question
Accounting
The contribution profit statement for Renton Ltd presented below represents operating results for the last financial year. Renton Ltd had sales of 1,800 units over this period and manufacturing capacity was 3,000 units. Contribution profit statement for the year ended 31 May 2019 Sales 900,000 Variable cost: - Manufacturing 315,000 - Selling 180,000 495,000 Contribution 405,000 Fixed cost - Manufacturing 90,000 - Selling 112,500 - Administration 45,000 247,500 Net Income 157,500 Required: a. Determine (i) the break-even point in units and sales revenue; (ii) margin of safety for Renton Ltd. b. Calculate the net income, assuming a sales volume of 2,100 units and no changes in selling price or cost behaviour. c. Renton Ltd is considering replacing a labour intensive process with an automatic machine. This would result in an increase of 58,500 in annual fixed manufacturing costs. The variable manufacturing costs would decrease by 25 per unit. Determine the new break-even point in units and sales revenue. d. Explain the terms (i) operating leverage; (ii) margin of safety, and evaluate whether or not Renton Ltd should adopt the machine, based on your workings in (a)-(c) above?
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
