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Cost Management-final                                                                                                       29

Rs.

Sales  revenue30,00,000

24,000  units X Rs. 125/-

Less: Variable  cost16,24,800

24,000 units X Rs. 67.70



Contribution13,75,200

Less:  Advertisement expensesRs. 1,94,000

 Fixed  expensesRs. 8,00,0009,94,000



Profit3,81,200

A problem on cost reduction

Problem 2

Even Forward Ltd. is manufacturing and selling two products: Splash and Flash at selling price of Rs 3 and Rs. 4 respectively. The following sales strategy has been outlined for the year :--

(i)

Sales planned for year will be Rs. 7.20 lakhs in the case of Splash and Rs. 3.50 lakhs in the case of Flash.

(ii)

To meet competition, the selling price of Splash will be reduced by 20% and that of Flash by 12 ½ % .

(iii)

Break- even is planned at 60%  of the total sale of each product.

(iv)

Profit for the year to be achieved is planned as Rs 69,120 in the case of Splash and Rs 17,500 in the case of Flash. This would be possible by launching a cost reduction programme and reducing the present annual fixed expenses of Rs. 1,35,000 allocated as Rs. 1,08,000 to Splash and Rs. 27,000 to Flash.

You are required to present the proposal in financial terms giving clearly the following information:

Number of units to be sold of Splash and Flash to break-even as well as the total number of units of Splash and Flash to be sold during the year.

Reduction in fixed expenses product-wise that is envisaged by the Cost Reduction Programme.       

Solution

SplashFlash

(a)Sales (Rs.)7,20,0003,50,000

(b)Sp/u (Revised)2.43.5

(80% of 3)(87.5% of 4)

(c)S. units (a/b)3,00,0001,00,000

(d)BEP60%60%

(e)BEP (cd)1,80,00060,000

Splashflash

(a)MOS40%40%

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