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Please help me to proceed with the following question;
X Ltd manufactures a product called the “ZT’. The original budget for the next year was:
Annual sales 10000 units
$ per unit
Selling price 20
Variable cost 14
Fixed cost 3
Profit 3If the selling price of the ZT were reduced by 10%, What would be the sales revenue needed to generate the original budgeted profit?
Ans: $270000With 10% discount, selling price becomes $18, which gives a sales value of $198000.
Taking 15000 units, sales value is $270000 but when variable and fixed cost is deducted, a profit of $15000 is obtained.
Please help me undestand how to get a profit of $30000 with a sales vaue of $270000.
With 15,000 units, the contribution is 15,000 x (18 – 14) = 60,000.
The fixed overheads will stay unchanged (by definition) at 10,000 x 3 = 30,000.
Therefore the profit is 60,000 – 30,000 = $30,000.
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