Question

Ruiz ehf sells a product at 90 kr / pcs. The variable cost of the product is 50 kr / pc. Today, Ruiz sells the product for a total of ISK 270,000 per month. Fixed production costs are a total of ISK 40,000 per month and sales and management costs are ISK 35,000 per month. Company executives are considering raising the product price by 10% as the fixed cost is rising in operations: production cost by 10% and sales and management costs by ISK 1,500 per month.

1. Calculate the current break-even point in units in Ruiz's operations

2. Calculate the company's profit and margin of safety, etc. current status

3. Calculate a break-even point in units, etc. changed assumptions ie 10% price increase and changed costs, as seen here above

4. Calculate profits in Tuiz's operating profit. changed assumptions (10% increase in prices and changed costs, as seen here above) and sales volume of 3,300 pieces

Answer 1

1. Contribution per unit = 90 - 50 = 40kr

Fixed cost = 40000 + 35000 = 75000

Break even point in units

= Fixed cost / contribution per unit

= 75000/40

= 1875

2. Profit = contribution - fixed cost

Sold units = 270000/90 = 3000 units

Contribution= 3000*40= 120000

Profit = 120000 - 75000 = 45000

Margin of safety = profit / contribution per units

= 45000/40 = 1125 units

Margin of safety in % = 1125 / 3000 * 100 = 37.5%

3. New price = 90+10%= 99

New contribution = 99 - 50 = 49

New fixed cost = (40000+10%) + (35000+1500)

= 80500

New break even = 80500/49 = 1643 units

4. New sales = 99* 3300 pieces = 326700

New variable cost = 50*3300 = 165000

New contribution = 326700-165000 = 161700

New profit = 161700 - 80500 = 81200

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