1. **Problem Statement:** We are given an income statement for Safari Manufacturing Ltd. for the year ended 30 September 2024 and expected changes for the next year. We need to: i) Compute the break-even point (sales value) for the current year. ii) Compute the margin of safety (sales value) for the current year. iii) Determine the sales value required to achieve a profit of 3,000,000 next year after changes. iv) Prepare a summary operating statement showing the calculation for the profit target. 2. **Calculate Contribution Margin and Break-even Point for Current Year:** - Sales = 45,000,000 - Direct material = 9,500,000 - Direct labour = 8,100,000 - Variable production overheads = 6,300,000 - Variable selling & distribution = 3,600,000 - Fixed production overheads = 10,200,000 - Fixed selling & distribution = 2,400,000 - Fixed administration expenses = 2,900,000 - Net profit = 2,000,000 Variable costs = Direct material + Direct labour + Variable production overheads + Variable selling & distribution = 9,500,000 + 8,100,000 + 6,300,000 + 3,600,000 = 27,500,000 Contribution = Sales - Variable costs = 45,000,000 - 27,500,000 = 17,500,000 Contribution margin ratio = Contribution / Sales = 17,500,000 / 45,000,000 = 0.3889 Total fixed costs = Fixed production overheads + Fixed selling & distribution + Fixed administration expenses = 10,200,000 + 2,400,000 + 2,900,000 = 15,500,000 Break-even sales value = Fixed costs / Contribution margin ratio $$\text{Break-even sales} = \frac{15,500,000}{0.3889} = 39,826,530$$ 3. **Calculate Margin of Safety for Current Year:** Margin of safety = Actual sales - Break-even sales = 45,000,000 - 39,826,530 = 5,173,470 4. **Calculate Sales Value Required for Profit of 3,000,000 Next Year:** Adjust sales price and costs for next year: - New selling price = 45,000,000 * 1.05 = 47,250,000 - New material cost = 9,500,000 * 1.04 = 9,880,000 - New labour cost = 8,100,000 * 1.03 = 8,343,000 - New variable production overheads = 6,300,000 * 1.02 = 6,426,000 - New variable selling costs = 3,600,000 * 0.98 = 3,528,000 - Fixed production overheads = 10,200,000 * 1.05 = 10,710,000 - Fixed selling & distribution = 2,400,000 (unchanged) - Fixed administration expenses = 2,900,000 (unchanged) New variable costs = 9,880,000 + 8,343,000 + 6,426,000 + 3,528,000 = 28,177,000 Contribution margin ratio next year = (New sales - New variable costs) / New sales = (47,250,000 - 28,177,000) / 47,250,000 = 19,073,000 / 47,250,000 = 0.4037 Total fixed costs next year = 10,710,000 + 2,400,000 + 2,900,000 = 16,010,000 Required sales to achieve profit 3,000,000: $$\text{Required sales} = \frac{\text{Fixed costs} + \text{Target profit}}{\text{Contribution margin ratio}} = \frac{16,010,000 + 3,000,000}{0.4037} = \frac{19,010,000}{0.4037} = 47,086,000$$ 5. **Summary Operating Statement for Next Year at Target Sales:** - Sales = 47,086,000 - Variable costs = 47,086,000 * (1 - 0.4037) = 47,086,000 * 0.5963 = 28,076,000 - Contribution = 47,086,000 - 28,076,000 = 19,010,000 - Fixed costs = 16,010,000 - Profit = Contribution - Fixed costs = 19,010,000 - 16,010,000 = 3,000,000 **Final answers:** - Break-even sales value (current year) = 39,826,530 - Margin of safety (current year) = 5,173,470 - Required sales for 3,000,000 profit next year = 47,086,000