A Ltd. Makes and sells a single product. The company’s trading results for the year are:
Figs. – Rs. ’000 (Year 2007)
Sales 3,000
Direct materials 900
Direct labour 600
Overheads 900 2,400
Profits 600
For the year 2008, the following are expected:
(i) Reduction in the selling price by 10%.
(ii) Increase in the quantity sold by 50%.
(iii) Inflation of direct material cost by 8%.
(iv) Price inflation in variable overhead by 6%.
(v) Reduction of fixed overhead expenses by 25%.
It is also known that :
(a) In 2006, overhead expenditure totalled to Rs. 8,00,000.
(b) Total overhead cost inflation for 2007 has been 5% more than 2006.
(c) Production and sales volumes have been 25% higher in 2007 than in 2006.
The high-low method is being used by the company to estimate overhead expenditure.
You are required to:
(i) Prepare a statement showing the estimated trading results for 2008.
(ii) Calculate the Break-even point for 2007 and 2008.
(iii) Comment on the BEP and profits of the years 2007 and 2008.
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