Y enterprises sells is product
Y enterprises sells is product at Rs. 20 per unit.Variable costs are Pa 15 per st (2/3manufacturing and 1/3non manufacturing). Fxed costs are incurreduniformly throughout the year and amount to Rs.750,000 (2/3mamufacturing and 1/3 non-mammfactaringRequired:a) The number of units that must be sold to carn an after-taxincome of Ra. 100,000assume income tax rate of 20%). Prove your answer by prepaningimcomestatement to that effectb) Illustrate the role of changes in fiscal policies (changes intax ates) and laborunions (changes in structure of salaries and wages) in altering thebreak-evenpoint calculated in (a). Your answver must be supported bycalculations based anarbitrarily assumed values
Answer:
1.
| After Tax Profit | 100,000 |
| Before tax profit (100,000*100/80) | 125,000 |
| Add: Fixed costs | 750,000 |
| Reuqired Contribution | 875,000 |
Contirbtuion per unit => 20 – 15 = 5 Rs per unit.
So, Units required to be produced => 875,000/5 = 175,000units.
Income Statement:
| Sales (175000) | 3500,000 |
| Less: Variable Costs | |
| Manufacturing Costs (15*2/3*175000) | 1750,000 |
| Non-manufacturing | 875,000 |
| Contirbution | 875,000 |
| Less: Fixed Costs | |
| Manufacturing (750,000*2/3) | 500,000 |
| Non-manufacturing | 250,000 |
| Income before taxes | 125,000 |
| Less: Taxes @ 20% | 25000 |
| Income after twax | 100,000 |
B.
- If Tax rates goes up by 5% ie 25% and down by 5% ie 15%
Required Income 100,000 100,000 Income after tax 100,000/.75 = 133,333 100,000/0.85 = 117,647 Fixed Cost 750,000 750,000 Contribution 883,333 867,647 Contribution per unit 5 5 Units to the sold 176,667 173,529 - If manufacturing costs both variable and fixed go up by 10% andfall by 10%:
Profit before taxes 125,000 125,000 Fixed costs (750,000+/-500,000*10%) 800,000 700,000 Contribution 925,000 825,000 Contirbtuion per unit (20-(15+1)=4 20-(15-1)= 6 Units to be sold 925000/4 = 231250 137,500
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