QUESTION

Question

THREE
(20 MARKS) Malenda Limited has two divisions each of which makes a different product. The fallowing data related with the
budgeted data
for the next year:
Sales
Direct material Direct labour
Factory overheads Price per unit
150,000,000 30,000,000 45,000,000 15,000,000 25
Details of factory overheads are as follows:
i)
Product
Y is
stored
in a
rented warehouse
whose rent is TZS. 250,000 per month. Product Z is required to be stored under special conditions. It is stored in a third party warehouse and the company
4
Product Y TZS
200,000,000 45,000,000
60,000,000
35,000,000 20
Product Z TZS

has to pay rent on the basis of space utilized. The
rent has been budgeted at TZS. 120,000 per month. ii)
Indirect labour has been budgeted at 20% of direct labour. 70% of the indirect labour is fixed.
iii) Depreciation
for
assets pertaining to product Y and Z is TZS.
6,000,000 and TZS. 2,000,000 respectively.
iv)
80% of the cost of electricity and fuel varies in accordance with the production in units and the total cost has been budgeted at TZS. 4,000,000
mition.
v) All
other
overheads are fixed.
Required
Compute the break-even sales assuming that the ratio of quantities sold would remain the same, as has been budgeted above

Answer 1

To compute the break-even sales, we need to calculate the total variable costs and total fixed costs.

Total Variable Costs:
Direct material = TZS. 30,000,000
Direct labor = TZS. 45,000,000
Factory overheads:
- Rent for Product Y = TZS. 250,000 x 12 = TZS. 3,000,000
- Rent for Product Z = TZS. 120,000 x 12 = TZS. 1,440,000
- Indirect labor = 20% of direct labor = 20% x TZS. 45,000,000 = TZS. 9,000,000 (70% fixed, 30% variable)
- Depreciation for Product Y = TZS. 6,000,000
- Depreciation for Product Z = TZS. 2,000,000
- Electricity and fuel = 80% of TZS. 4,000,000 = TZS. 3,200,000

Total Variable Costs = TZS. 30,000,000 + TZS. 45,000,000 + TZS. 3,000,000 + TZS. 1,440,000 + TZS. 9,000,000 + TZS. 6,000,000 + TZS. 2,000,000 + TZS. 3,200,000 = TZS. 99,640,000

Total Fixed Costs:
Factory overheads (remaining portion after variable costs) = TZS. 25 x 150,000,000 = TZS. 3,750,000
Other fixed overheads = TZS. 35,000,000 + TZS. 60,000,000 + TZS. 20,000,000 + TZS. 4,000,000 = TZS. 119,000,000

Total Fixed Costs = TZS. 3,750,000 + TZS. 119,000,000 = TZS. 122,750,000

Total Costs = Total Variable Costs + Total Fixed Costs = TZS. 99,640,000 + TZS. 122,750,000 = TZS. 222,390,000

Break-even Sales:
Break-even Sales = Total Costs / Price per unit
Break-even Sales = TZS. 222,390,000 / TZS. 25 = 8,895,600 units

Therefore, Malenda Limited needs to sell 8,895,600 units to break even.