GF Limited makes and sells mini greenhouses for £80 each. The direct material component of each mini greenhouse costs £40, direct labour makes up £15 of the variable cost and variable overheads total up to £5. GF Limited has annual fixed costs of £54,000. A commission of £2 per mini greenhouse is paid to the sales representative for each sale achieved. GF Limited currently has sales of 5,000 mini greenhouses. Calculate the profit that GF Limited will make if 4,000 mini greenhouses are sold.

Question

Quizplus · Accepted Answer

The selling price per mini greenhouse is £80. The total variable cost per unit is £40 (materials) + £15 (labour) + £5 (overheads) + £2 (commission) = £62. The contribution per unit is £80 - £62 = £18. For 4,000 units, the total contribution is 4,000 * £18 = £72,000. Subtracting the fixed costs of £54,000, the profit is £72,000 - £54,000 = £18,000.

GF Limited Makes and Sells Mini Greenhouses for £80 Each