Analysis of Desklib's Product Performance and Financial Planning

a)
i. Which product is performing the best?
- TV Tables:
Sales = Number of units * Price per unit
= (300) * (1000)
= 300,000
Variable Cost =
DM 50 * 10 * 300 150,000
DL 30 * 3 * 300 27,000
SC 10 * 300 3,000
VMO 20 * 300 6,000
Total 186,000
CM = Sales – VC
= (300,000) – (186,000)
= 114,000
- Dining Tables:
Sales = Number of units * Price per unit
= (200) * (5000)
= 1,000,000
Variable Cost=
CM = Sales – VC
= (1,000,000) – (281,800)
= 718,200
DM 50 * 25 * 200 250,000
DL 30 * 4 * 200 24,000
SC 15 * 200 3,000
VMO 24 * 200 4,800
Total 281,800

- Chairs:
Sales = Number of units * Price per unit
= (450) * (700)
= 315,000
Variable Cost:
CM = Sales – VC
= (315,000) – (149,000)
= 165,150
The product with the best performance is dining tables; it has the highest CM.
ii. Calculate the overall break-even point in sales value for the company and the break-
even point in sales value for each product line.
Fixed Cost =
Production manager annual salary 60,000
Annual Fixed manufacturing overhead 10,000
Annual Marketing Costs 10,000
Depreciation 10,000
General Expenses 5,000
Total 95,000
CM Ratio =Total CM / Total Sales
= 997,350 / 1,615,000
= 0.617
Breakeven Point for the company (In sales) = Fixed Cost / CM Ratio
= 95,000 / 0.617
= 153,970.8
BEP of TV Tables (In sales) = 95,000 / (114,00 / 300,000)
= 95,000 / 0.38
= 250,000
BEP of Dining Tables (In sales) = 95,000 / (718,200/1,000,000)
DM 50 * 5 * 450 112,500
DL 30 * 2 * 450 27,000
SC 5 * 450 2,250
VMO 18 * 450 8,100
Total 149,850

= 95,000 / 0.718
= 132,311.9
BEP of Chairs (In sales) = 95,000/ (165,150 / 315,000)
= 95,000 / 0.524
= 181,279.7
iii. If the selling price of TV tables is increased to SAR 1,200 per unit, what will be the
increase in overall profit.
TV Tables
(Initial Price)
Dining
Tables Chairs Total
Sales 300,000 1,000,000 315,000 1,615,000
Less VC 186,000 281,800 149,850 617,650
CM 114,000 718,200 165,150 997,350
Less FC 95,000
Net Profit 902,350
TV Tables
(New Price)
Dining
Tables Chairs Total
Sales 360,000 1,000,000 315,000 1,675,000
Less VC 186,000 281,800 149,850 617,650
CM 174,000 718,200 165,150 1,057,350
Less FC 95,000
Net Profit 962,350
A 200 SA increase in the price of TV tables results in a 60,000 SA increase in overall profit.
iv. What level of sales (value) must the company achieve to make a profit of SAR 1,500,000.
Sales required to achieve the target profit = (FC + Target profit) / CM Ratio
= (95,000 + 1,500,000) / 0.617
= 1,595,000 / 0.617
= 2,585,089