Accounts and Finance Essay

1624 WordsDec 14, 20137 Pages
MARGINAL OR VARIABLE INCOME STATEMENT Marginal costing statement on per unit basis The direct materials cost, direct labor cost and other variable costs per unit are assumed to remain constant at any level of activity to produce the finished good i.e. Instagrowth hair oil. The fixed cost for the business operation is also constant along with the selling price per unit including both variable and fixed costs of it. The units sold are assumed to be 125,000 on 12 month basis. Following are my assumptions for the finalization of per unit cost after a research on hair growth products. Material (solvents, holding agents and other additives, propellants) cost per unit = $4 Labor cost per unit = $5 Variable manufacturing overhead = $2 Total Variable cost = $ 11 Fixed costs (spread over the complete units being sold under assumption for first 12 months of trading) = $2 Markup = $3 Selling price per unit = $16 The marginal costing statement is shown below. Figure 1 Marginal costing on per unit basis Figure 2 Margin costing on 12-month basis BREAK EVEN ANALYSIS Units sold ($ ‘000) 20 40 60 80 100 120 Costs and Revenue ($ ‘000) 320 640 960 1280 1600 1900 Contribution margin per unit 5 5 5 5 5 5 Fixed costs 250 250 250 250 250 250 Break even per unit = Fixed costs/Contribution margin = 250/5 = 50 units Margin of safety = 125 – 50 = 75 The margin of safety is 75 units i.e. $1,200,000. This indicates the amount by which Care & Cure could face a decrease in sales before

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