Calculation of Budgeted Profit, Break-Even Point and Safety Margin for Desklib

This article provides detailed calculations and analysis for budgeted profit, break-even point and safety margin for Desklib, an online library for study material with solved assignments, essays, dissertation etc. It includes calculations for Squid, Proud Stas and Private Zoo products. The article also explains how changes in variable costs and sales mix affect the break-even point. Course code, course name and college/university are not mentioned.

1.
Crumpler’s budgeted profit for the year 2017 is calculated as under:
Particulars Squid Proud
Stas
Private
Zoo
Total
Selling Price $64 $78 $125
Variable Cost $52 $64 $97
Contribution / Unit* $12 $14 $28
Budgeted Sales Quantity 4,500 4,500 6,000 15,000
Budgeted Contribution** $54,000 $63,000 $1,68,000 $2,85,000
Fixed Costs:
Manufacturing Costs $1,50,000
Selling and Administrative Cost $1,20,000
$2,70,000
Net Income before Tax*** $15,000
Tax @ 30% $4,500
Net Income $10,500
Thus, it can be seen from the above calculation that the budgeted net profit for the year 2017
is $10,500.
* Contribution Per Unit is calculated as Selling Price Per Unit – Variable Cost Per Unit
** Budgeted Contribution is calculated as Contribution Per Unit*Budgeted Sales Quantity
*** Net Income before tax is calculated as budgeted contribution – fixed costs

2.
The break-even point of each product and the company as a whole for the year 2017 is
calculated as under:
Particulars Squid Proud
Stas
Private
Zoo
Total
Sales Mix 0.30 0.30 0.40
Contribution / Unit (as calculated
above)
$12.00 $14.00 $28.00
Weighted Contribution* $3.60 $4.20 $11.20 $19.00
Fixed Costs $2,70,000
Break even quantity** 4,263.16 4,263.16 5,684.21 14,210.53
Break even quantity (round off) 4,264.00 4,264.00 5,685.00 14,213.00
It can be seen from the above calculations that the break-even point is in decimals. However,
products cannot be sold in decimals. Therefore, break-even units are rounded up to the next
full units. Therefore, break-even units for the 3 products are 4,264 units, 4,264 units and
5,685 units respectively.
* Weighted contribution is calculated as sales mix*contribution per unit
** Break even quantity is calculated as (fixed costs / weighted contribution per unit)
3.
(a)
The Projected Safety Margin in units is calculated as under:
Particulars Squid Proud Stas Private
Zoo
Total
Budgeted Sales Quantity 4,500 4,500 6,000 15,000
Break even quantity 4,264 4,264 5,685 14,213
Safety Margin in Units* 236 236 315 787
It can be seen from the above working that safety margin is 236 units, 236 units and 315 units
respectively.
* Safety Margin in unit is calculated as budgeted sales quantity – break even quantity

(b)
The projected safety margin in dollar sales is calculated as under:
Particulars Squid Proud
Stas
Private
Zoo
Total
Budgeted Sales $2,88,00
0
$3,51,00
0
$7,50,000 $13,89,000
Break even Sales $2,72,89
6
$3,32,59
2
$7,10,625 $13,16,113
Safety Margin* $15,104 $18,408 $39,375 $72,887
It can be seen from the above calculations that the budgeted sales of the company is just
above the break-even point. Therefore, margin of safety is very thin.
* Safety Margin in $ Sales is calculated as budgeted sales – break even sales
4.
In this situation, variable costs of two of the main products of the company has increased.
However, the company has increased the price to increase unit sales. The sales mix has also
been altered by the management as it expects that there is more potential in Private Zoo
product line.
The revised break-even point is calculated as under:
Particulars Squid Proud Stas Private
Zoo
Total
Revised Sales Mix 1 1 3 5
Selling Price $64.00 $78.00 $125.00
Revised Variable Cost:
Manufacturing $40.00 $48.00 $93.75
Selling $12.00 $19.00 $22.00
$52.00 $67.00 $115.75
Revised Contribution / Unit* $12.00 $11.00 $9.25
Weighted Average
Contribution**
$2.40 $2.20 $16.65 $21.25
Fixed Costs $2,70,000
Break even quantity*** 2,541.18 2,541.18 7,623.53 12,705.88

Break even quantity (round up) 2,542.00 2,542.00 7,624.00 12,708.00
Thus, it can be seen from the above calculations that the break-even point of the company as
a whole has decreased with these changes. However, break-even point of Private Zoo has
increased as there is substantial increase in variable cost of this product.
* Contribution Per Unit is calculated as Selling Price Per Unit – Variable Cost Per Unit
** Weighted contribution is calculated as sales mix*contribution per unit
*** Break even quantity is calculated as (fixed costs / weighted contribution per unit)