The summarized income statement of CFC Limited a chemical manufacturer for January 2008 and 2009 is as follows:

	2008 ($) 000	2009 ($) 000
Sales	45,000	60,480
Material cost	(20,000)	(23,760)
Labor and variable overheads	(10,000)	(11,320)
Contribution	15,000	25,400
Fixed overheads	(20,000)	(22,000)
Net profit/(loss)	(5,000)	3,400

 

Towards the end of 2008 company decided to do something about the serious loss of the company. They made plans to cut the wastes and introduce new methods in plant, these plans became effective from 1-1-2009 and from the same date sale price was increased by 20%. The effect of this action plus more efficiency in the factory, would produce a profit of $5m per month in 2009.

They used financial date from January 2008 and January 2009 as data to give them early indication of whether their plans were working. They reviewed the results in early 2009 and were reasonably pleased with the outcome even though the target profit was not achieved.

However, they could not agree on how much the January 2009 results should have attributed to the various courses of action they had taken, particularly since material prices rose by 10 % and labor and variable overheads by 15%.

Required:

Prepare a statement showing how much of increased profit is due to:

a) Selling prices

b) Change in the volume of sales

c) Effect of material and other price increase

d) Introduction of new methods in factory

Assume all prices and cost increases took place on 1-1-2009

The summarized income statement of CFC Limited a chemical manufacturer for January 2008 and 2009 is as follows:

	2008 ($) 000	2009 ($) 000
Sales	45,000	60,480
Material cost	(20,000)	(23,760)
Labor and variable overheads	(10,000)	(11,320)
Contribution	15,000	25,400
Fixed overheads	(20,000)	(22,000)
Net profit/(loss)	(5,000)	3,400

 

Answer rating: 100% (QA)

a Selling price has increased by 20 If selling price was 100 in 2008 it became 120 on January 1 2009 ... View the full answer