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DMS 4032 - Solution CVP Analysis
DMS 4032 - Solution CVP Analysis
DMS 4032 - Solution CVP Analysis
Question 1
Jak Boeno Sports manufactures and sells world class recreational equipment. One of the
company’s products, a small camp stove, sells for RM 75 per unit. Variable expenses are RM
45 per stove, and fixed expenses associated with the stove total RM 180,000 per month.
Required:
a) Show computation of the break-even point in number of stoves and in total sales in
Ringgit Malaysia.
b) If the variable expenses per stove increase as a percentage of selling price, will it result
in a higher or lower break-even point? Why? (Assume that the fixed expenses remain
unchanged.)
Result in higher break-even-point
Because – CM will decrease as percentage of sales
- more have to be sold
c) At present, the company is selling 7,000 stoves per month. The sales manager is
convinced that a 5% reduction in the selling price would result in a 15% increase in
monthly sales of stoves. Prepare two contribution income statements, one under present
operating conditions, and one as operation would appear after the proposed changes.
Show both total and per unit data on your statements.
Present : Proposed :
7,000 stoves 8,050 stoves
Total Per unit Total Per unit
Sales RM 525,000 RM 75 RM RM 71.25
573,562.50
Less : Variable expenses 315,000 45 362,250 45
Contribution margin 210,00 RM 211,312.5
0 0
Less : Fixed expenses 180,000 180,000
Net income RM 30,000
R
M
3
1,
3
1
1
2.
5
0
d) Refer to the data in (c) above. How many stoves would have to be sold at the new
selling price to yield a net minimum income of RM 40,000 per month?
Question 2
Birdy Company’ makes high quality wooden birdhouse, called Chiki Lala. The Birdy
Company’s 2012 forecast are to sell 45,000 units of a product it makes for RM11.25 million
in revenue. Variable manufacturing cost per unit is RM125 where as variable selling expenses
per unit is RM30. The company’s fixed manufacturing cost per unit is RM50, based on a
normal volume of 50,000 units. Fixed selling expenses for the year are estimated to be
RM350,000.
Required:
= RM2,850,000
250-125
= 22,800 units.
Calculate the sales revenue (BEP in RM) required to be maintained if the new cost
structure is put in place after purchasing the new cost-saving machine.
2
BEP in unit = Fixed expense/unit contribution margin
= RM3,075,000
120
= 25,625 units.
Question 3
Mikasa Company manufactures volleyballs. The company has a ball that sells for RM25. At
present, the ball is manufactured in a small plant that relies heavily on direct labour workers.
Thus variable cost are high, totaling RM15 per ball, of which 60% is direct labor cost.
Last year company sold 30,000 of these balls, with the following result.
Required:
a) Calculate the contribution margin ratio and the break-even sales in balls.
Selling price................................... 25 100%
Variable expenses.......................... 15 60%
Contribution margin...................... 10 40%
3
c) Refer to the data in (b) above.
i) If the expected change in variable costs takes place, how many balls will have to be
sold next year to earn the same net operating income as last year?
Unit to sold to obtain targeted profit = Fixed cost + desired profit
CM per unit
= RM 210,000 +90,000
RM7
= 42,857 units
ii) The president fells that the company must raise the selling price of its volleyballs. If
the company wants to maintain the same contribution margin ratio as last year, what
selling price per ball must it charge next year to cover the increased labour cost?
The contribution margin ratio last year was 40%. If we let P equal the new selling
price, then:
P= RM18 + 0.40P
0.60P = RM18
P= RM18 ÷ 0.60
P= RM30
To verify:
RM3
Selling price................................. 0 100%
Variable expenses........................ 18 60%
RM1
Contribution margin.................... 2 40%
4
5