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Cost-Volume-Profit Analysis for TTL Corporation
TTL Corporation is in the manufacturer of several plastic products. TTL sells its one of the plastic product for SAR 500. The variable costs per unit are SAR 200, and the total fixed costs are SAR 510,000. Based on cost-volume profit analysis, calculate: (6 Marks)
a)Contribution margin per unit and contribution margin ratio. b)Break-even point in units and sales SAR. c)Pretax profit if the company sells 2,200 units. d)Profit/loss if the company sells 1,500 units. e)Units needed to reach target pretax profit of SAR 180,000. f)Sales SAR needed to reach the target pretax profit of SAR 180,000.
Cost-Volume-Profit Analysis for TTL Corporation
In order to assess the financial performance and profitability of TTL Corporation, we will conduct a cost-volume-profit analysis based on the provided information. This analysis will help us determine key metrics such as contribution margin, break-even point, profits at different sales levels, units needed to reach a target profit, and sales required to achieve the target profit.
Given Information:
- Selling Price per Unit: SAR 500
- Variable Costs per Unit: SAR 200
- Total Fixed Costs: SAR 510,000
- Sales Volume for Various Scenarios: - Scenario 1: 2,200 units
- Scenario 2: 1,500 units
- Target Pretax Profit: SAR 180,000
Calculations:
a) Contribution Margin per Unit and Contribution Margin Ratio:
Contribution Margin per Unit = Selling Price per Unit - Variable Costs per Unit
Contribution Margin per Unit = SAR 500 - SAR 200 = SAR 300
Contribution Margin Ratio = (Contribution Margin per Unit / Selling Price per Unit) * 100
Contribution Margin Ratio = (300 / 500) * 100 = 60%
b) Break-even Point:
Break-even Point (in Units) = Total Fixed Costs / Contribution Margin per Unit
Break-even Point (in Units) = SAR 510,000 / 300 = 1,700 units
Break-even Point (in Sales SAR) = Break-even Point (in Units) * Selling Price per Unit
Break-even Point (in Sales SAR) = 1,700 * 500 = SAR 850,000
c) Pretax Profit at 2,200 Units Sold:
Pretax Profit = (Selling Price per Unit - Variable Costs per Unit) * Number of Units Sold - Total Fixed Costs
Pretax Profit = (500 - 200) * 2,200 - 510,000 = 660,000 - 510,000 = SAR 150,000
d) Profit/Loss at 1,500 Units Sold:
Profit/Loss = (Selling Price per Unit - Variable Costs per Unit) * Number of Units Sold - Total Fixed Costs
Profit/Loss = (500 - 200) * 1,500 - 510,000 = 450,000 - 510,000 = SAR -60,000 (Loss)
e) Units Needed to Reach Target Pretax Profit of SAR 180,000:
Units Needed = (Total Fixed Costs + Target Pretax Profit) / Contribution Margin per Unit
Units Needed = (510,000 + 180,000) / 300 = 2,300 units
f) Sales SAR Needed to Reach Target Pretax Profit of SAR 180,000:
Sales SAR Needed = (Total Fixed Costs + Target Pretax Profit) / Contribution Margin Ratio
Sales SAR Needed = (510,000 + 180,000) / 0.60 = SAR 1,150,000
Summary:
- Contribution Margin per Unit: SAR 300
- Contribution Margin Ratio: 60%
- Break-even Point: 1,700 units or SAR 850,000 in sales
- Pretax Profit at 2,200 Units Sold: SAR 150,000
- Profit/Loss at 1,500 Units Sold: SAR -60,000 (Loss)
- Units Needed to Reach Target Pretax Profit of SAR 180,000: 2,300 units
- Sales SAR Needed to Reach Target Pretax Profit of SAR 180,000: SAR 1,150,000
By analyzing these metrics, TTL Corporation can make informed decisions regarding pricing strategies, sales targets, and profitability goals to ensure sustainable growth and financial stability.