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Using Profit and Loss Statement information to perform CVP analysis
Last year's profit and loss statement for ABC Ltd was presented as follows:
Sales (20 000 @ $20) $400 000
Cost of Sales:Direct Materials $120 000Direct Labour 80 000 200 000 200 000
Other Expenses:
Fixed
40 000
Variable
100 000
140 000
Net Profit
$60 000
This year sales volume is expected to decrease by 5%, and total material and labour costs are expected to increase by 10%. Other variable expenses fluctuate directly with dollar sales. Fixed expenses are expected to drop by $3500.
Required:
(a) Ignoring income taxes, what is this year's expected net profit?
(b) What sales price per unit will be necessary this year if management wishes to maintain the same profit to sales ratio as last year?
Discuss factors or conditions that contribute to such a possibility. How can additional information and supplementary data (beyond financial statements) help prevent this possibility?
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