The summarized income statement of CFC Limited a chemical

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

 

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