Question

Maanda For You Ltd is an independent power producer and was recently awarded a large contract by one major electricity supplier. Two maverick brothers, Tom and Tory Capturers, run the company on a full time basis. The company runs two plants, one is manual and the other one is automated. The two brothers appoint specialist technicians on a contract basis. The two Capturers brothers are considering an opportunity to lease expensive machinery that will result in reducing the hours of work required from the specialist technicians.

The following budgeted monthly information is avaible for the two plants.

                                              Manual         Automated
Fees received for
supplying power               R450000      R450000

Fixed costs
Equipment fees paid       R55000         R150000
Maintenance contract     R19000         R28000
Rent paid for premises    R30000         R30000

Variable costs
Direct labour                      R100000      R50000
Direct materials                 R70000        R40000
Variable manufacturing
overheads                           R35000        R14000

Calculate the budgeted monthly break even sales value for the manual plant and for automated plant individually.

Answer 1

	Manual	Automated
Fess received	450000	450000
Variable costs
Direct labor	100000	50000
Direct materials	70000	40000
Variable manufacturing overhead	35000	14000
Total variable costs	205000	104000
Contribution margin	245000	346000
	54.44%	76.89%
Fixed costs:
Equipment fees paid	55000	150000
Maintenance contract	19000	28000
Rent	30000	3000
Total fixed costs	104000	181000
Net income	141000	165000
Breakeven sales value	= Fixed costs*sales value/contribution margin
	=104000*450000/245000	=181000*450000/346000
	191020.41	235404.62
	Or
	=fixed costs/contribution margin%
	=104000/0.5444	=181000/0.7689
	191020.41	235404.62