MGT402 GDB Solution 2013

Total Marks	30
Starting Date	Friday, July 05, 2013
Closing Date	Tuesday, July 09, 2013
Status	Open
Question/Description	Learning Objectives: The students are expected to learn and apply the cost-volume-profit analysis. Scenario:                Aini & Alex (Pvt.) Limited launched its fashion accessories in ladies’ purses few years back in Karachi with the aim to let them handle their necessities with comfort. Now, its brands are famous for stylish and affordable accessories.    At the start of new financial year, the sales manager of the Aini & Alex (Pvt) limited has to plan about future sales of its bags section, consisting of two product lines - leather handbags and clutch purses. To plan about future sales, the sales manager is in need of data about per unit cost and profit for each product line from the company’s accountant. Accountant demonstrates the per unit data that shows currently the company is selling leather handbags at Rs. 300 per unit and clutch purse at Rs 190 per unit respectively. Other cost data is as follows: Details     Leather Handbags   Clutch Purses Rs. P/U Rs. P/U Variable cost 130.00 110.00 Fixed cost 144.00 52.50 Profit 26.00 27.50 Considering the above mentioned information, answer the following: a)   Determine per unit contribution margin, contribution margin ratio for each of the product. b)   If the sales manager of Aini & Alex (Pvt.) Limited decides to increase production substantially any of the above two products (manufactured units are expected to be sold in the market), determine which product will be more profitable for the company to produce assuming that cost behavior pertains remain unchanged. c)    Support your answer in part (b) based on logical reason.

            SOLUTION IDEA'S

Per unit contribution margin = selling price per unit - variable cost per unit 

Contribution margin ratio = contribution margin rs / sales in rs

Do not try to copy for any solution so  for better understanding listen the lecture no 29, 30 so you can understand it and will be helpful for final term.

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Contribution Margin   =   Revenues   –   Variable Expenses

The contribution margin for one unit of product or one unit of service is defined as:

Contribution Margin per Unit   =   Revenues per Unit   –   Variable Expenses per Unit

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Contribution margin = Sales - Varible cost
Contribution margin = 300 - 130 = 170

Contribution margin Ratio with Sales = 170/300 = 0.56
Is it correct?


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