Question -
Bruggs & Strutton Company Ltd manufactures an engine for carpet cleaners called the 'Snooper'. The 'Snooper' is the only product that the company produces and sells. Cost and revenue data, based on sales of 40,000 units, is given below:
Total $ Per unit $
Sales 1,600,000 40.00
Cost of goods sold 1,120,000 28.00
Gross margin 480,000
Selling and administration expense 120,000 3.00
Net profit before taxes 360,000
The cost of goods sold consists of $800,000 variable and $320,000 fixed. Selling and administrative expenses consist of $100,000 variable and $20,000 fixed.
Required:
(i) Calculate the break-even point in units.
(ii) Calculate the margin of safety at the present sales level in dollars and per cent.
(iii) Bruggs & Strutton received an order for 6,000 units at a price of $25.00. There will be no increase in fixed costs and variable costs will be reduced by $0.54 per unit in packaging costs. The company has excess capacity to produce the order. Determine the projected increase or decrease in profit from the order.