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On introduction finance and accounting - Essay Example

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On introduction finance and accounting

That for the energy drink, the net profit value as a percentage of sales is estimated at between 12% to 18%. That the fixed cost will be estimated as the difference of the gross profit and the net profit figures That the direct costs; both for materials and labor is estimated at between 22% to 27% of the sales figure. 2. Assuming the drink being produced is of the 250ml packet in a bottle type of packaging. Assuming the number of units of the drink produced is 6000 units, the variable cost per unit is provided as follows: - direct materials $2, direct labor $4, variable manufacturing overhead $1, variable selling and administration expenses $3. The fixed costs of the product per annum are estimated as follows; fixed manufacturing overhead $30,000 and fixed selling and administration is $10,000. The selling price per unit produced is estimated as $15. The marginal costing statement will appear as follows: Product cost per unit Direct materials $2 Direct labor $4 Variable manufacturing overhead $1 Product cost per unit $7 The variable costs for the production of the drink for the 6000 units will be 6000*$7 = $42000. The costs for the production of the drink for the whole year will therefore be as follows: Total variable costs $42000 Fixed manufacturing overhead $30000 Fixed selling and administration $10000 Total costs $82000 The total cost per unit for the drink per month will be $82000/12 = $6833.3. The $30000 fixed manufacturing overhead will be is charged off in total against the income as a period expense. The same applies to the selling and administration expense. Under this form of costing system, all the variable costs of production are included in the product cost. This means that if the variable cost of the product per unit is $7, then only $7 will be deducted as the cost of goods sold per unit. All the unsold units will also be carried in the balance sheet inventory account at just $7. 3. Produce a break-even analysis (table and graph) for your product based on 12 months activity Breakeven point shows the level of sales by a business to enable it cover all its costs. The sole objective of breakeven is to enable the business be able to work out the contribution made from the sale of each unit. This is because the amount at which each unit is sold will significantly contribute to pay for the indirect costs and the fixed costs of the business. Total units produced 6000 Total revenue 90000 Contribution margin 50000 Total fixed cost 40000 Break even units 5000 NB: The variable cost per month will be; 42000/12 = $3500 and the Break even in units will be; 40000/ (15-7) = 5000 units The Break Even Table JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Units Sold 500 500 500 500 500 500 500 500 500 500 500 500 Total Revenue in $ 7500 7500 7500 7500 7500 7500 7500 7500 7500 7500 7500 7500 Variable Costs in $ 3500 3500 3500 3500 3500 3500 3500 3500 3500 3500 3500 3500 Contribution margin 4166.7 4166.7 4166.7 4166.7 4166.7 4166.7 4166.7 4166.7 4166.7 4166.7 4166.7 4166.7 Fixed costs Manufacturing in $ 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 S & D 833.3 833.3 833.3 833.3 833.3 833.3 833.3 833.3 833.3 833.3 833.3 833.3 Total FC 3333.3 3333.3 3333.3 3333.3 3333.3 3333.3 3333.3 3333.3 3333.3 3333.3 3333.3 3333.3 Break Even Units 416.7 416.7 416.7 416.7 ...Show more

Summary

Date 1. The assumptions used to produce the key financial figures are varied and they are to ensure that the financial data used are realistic and reliable by the users of the financial information. The assumptions include the following:- That the cost of sales figures to be used in the calculations is 45% of the identified sales figure…
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Essay on introduction finance and accounting essay example
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