Samsonite Leather Company is engaged in manufacturing school bags. During the first quarter of 2019, considering lower sales as compare to last quarter of 2018, the director asked for detailed accounts data to enquire about reasons behind decline in sales. In the core committee meeting, accounts department presented the following information :

• Raw material used in the production had a cost of Rs. 450 per unit.
• Direct Labor was paid during the quarter @ Rs. 125/hr. Whereas, total working hours during the quarter accounted for 630 hrs.
• Factory rent was paid @ Rs. 60,000 per month.
• Machinery and building were depreciated @ Rs. 90,000 and Rs. 100,000 per annum respectively.
• Firm manufactured 4000 bags in first month, 6000 bags in second month and 5000 bags in the last month of quarter.
• Inventory at the beginning of quarter was 570 bags and at the end of quarter was 750 bags.
• Each bag manufactured was sold at a price plus 25% mark-up.

Calculate:

1. In order to be in a state of making no profit no loss, how many bags must have been sold during the first quarter.
2. In order to earn profit of Rs. 10,50,000, do you think if firm sold the required quantity as per the sales mentioned by accounts department during the first quarter of 2019?
3. By how much do you think the firm should increase its sales (in units) in order to increase existing profit by 25% ?

Answer rating: 100% (QA)

a The point where a company earns no profit no loss is known as the breakeven point the ... View the full answer