BREAK EVEN QUESTIONS 1. B/E Question Hips & Co produces a product that sells for R40.00 per unit. Variable costs to manufacture and sell the unit amount to R30.00 per unit. Fixed costs and expenses are going to amount to R50,000 per period. a) Calculate the break-even point in Sales. b) Calculate the pre-tax profits to be expected on sales of R400,000. c) Calculate the sales required to produce a pre-tax profit of R40,000. d) Calculate the sales revenue required to produce an after tax profit of R20,000 if the tax rate is 25%. e) If the company wished to increase the after tax profit by R5,000 what increase in sale revenue is required? f) If basic salaries to the sales personnel were to be increased by R4,000, calculate the increase in sales that would be required in order to cover the increase. g) The sales manger believes that sales revenue can be increased by R80,000 if he is given additional funds for a sales promotion. What is the maximum amount that he may be allowed to spend so that the company does not lose money on the promotion? 2. B/E Question Tools and Co Income statement for the year ended 31 July 2012 Sales 1,500,000 % of sales 100% Variable expenses Cost of goods Commissions Royalties Transport Cash discounts Consumables 1,161,000 1,005,000 60,000 75,000 12,000 3,000 6,000 77.4% 67.0% 4.0% 5.0% 0.8% 0.2% 0.4% Gross profit 339,000 22.6% Fixed expenses Depreciation Insurance Rent Manager's salary Wages Electricity & water Equipment hire Subscriptions Advertising 309,000 10,000 20,000 60,000 80,000 63,600 5,400 16,000 15,000 39,000 Net profit before tax 30,000 Complete the following: 1. What would be the effect on the 2013 net profit of Tools & Co if the sales increased by 20% while the ratio of variable expenses to sales and the amount of fixed expense remained unchanged? 2. What would be the effect on the 2013 net profit if the existing manager were to retire and was replaced by a new manager for a salary of R60,000 per year? (Apply this information to this question only). 3. What could sales decline to before operations resulted in a net loss, assuming that the ratio of variable expenses to sales and the amount of fixed expense remained unchanged? 4. If Tools & Co wanted to achieve a net profit of R100,000 in 2013 and all the other factors are expected to behave as they did in 2012, what sales would be needed? 5. What would the break-even (expressed in sales) be if the gross profit percentage were reduced from 22.6% to 20%?