ACC1100D Accounting

Topic 11 – Cost Volume Profit Analysis (CVP) – in-class questions

Question One
Edith Cowan College is planning a one-day workshop for students at a selling price of $180
per person.
The workshop is designed outline employment opportunities and to improve skills in the
areas of CV development & job interviews. As a member of the organising committee, you
have been given the following estimates in relation to the event:

Fixed or Variable
Costs
Lunches, morning and afternoon teas. $18 per person VC
Cost to advertise the event. $300 FC
Participant Materials $12 per person VC
Fee to be paid to the guest speaker. $800 FC
Venue Hire $2,000 FC
Hire of equipment (i.e. microphone, $350 FC
speakers, overhead projector).
Cameraperson to film the event. $360 FC
Drinks per person $6 per person VC
Hire of chairs, desks for the function $550 FC

Required

Question One Divide the above items into fixed or variable expenses.

Variable Cost per person = $_____36____ Total Fixed Costs = $_____4360______

Question Two

What is the Contribution Margin per person? _________144_________

Question Three
It is estimated that 50 people will attend the seminar, what is the Profit?

SP*Q = VC*Q + TFC + Profit OR PROFIT = Total contribution – TFC

180*50= 36*50 + 4360 + Profit
9000 = 6160 – Profit Profit = (180 -36)*50 - 4360
9000 – 6160 = 2840 = 7200 - 4360
Profit = 2840
CVP Equation
Profit = SP(x) – VC(x) - FC

Question Four
What is the Contribution Margin for Total Sales with 50 people attending?
_144*50= 7200___________
Question Two
Forza Ltd. manufacture coffee tables. The following information shows the costs associated
with producing these tables:

Direct Materials Each table requires 4kg of materials.

The materials cost $3 per kg.
Direct Labour An employee takes two hours to complete each table.
Employees are paid $7 per hour.
Machine Time Each table requires 1 hour of machine time.
Machine time costs $3 per hour.
Sales Commission Sales staff receive $5 commission for every table they sell.
Fixed Costs $240,000

Selling Price $50

Required
1. Calculate the variable cost per table.

Cost per table

DM 4kg*$3 = $12
DL 2 hrs*$7 = $14
Machine time 1hrs*$3 = $3
Sales comm. $5
VC PER UNIT = 34

2. What is the contribution margin per unit?

Selling price – vc = 50-34 = 16

3. What profit will Forza Ltd. make if they sell 19,000 tables?

Profit = total contribution – tfc

= 16*19 000 – 240 000
=304 000 – 240 000
=64 000

4. What is the Contribution Margin for Total Sales is they sell 19,000 tables?
16*19,000 = 304 000
 5. If the company aims to make a profit of $40,000, how many tables must be sold?

SP*Q = VC*Q + TFC + PROFIT OR TFC+TARGET PROFIT

50*Q = 34*Q + 240 000 + 40 000 contribution per unit
50Q – 34 Q = 280 000
16Q = 280 000 240000+40000/16
Q = 280000/16 Q = 17500
Q = 17500

6. How many tables need to be sold to break-even?

SP*Q = VC*Q + TFC + 0 OR BEP in units = TFC

50*Q = 34*Q + 240 000 + 0 Contribution per unit
16Q = 240 000 = 240 000/16
Q = 240 000/16 Q = 15 000
Q = 15 000

7. Based on the business selling 19000 tables what is the Margin of Safety in Units.
MOS = current sales – BEP sales
= 19 000 – 15 000
= 4 000

8. If it is estimated that 20,000 tables are to be sold, what is the break even selling price?

SP*Q = VC*Q + TFC + 0

Sp*20 000 = 34*20 000 + 240 000 + 0

SP20 000 = 920 000
SP= 920000/20000
= $46

9. The Manager at Forza Ltd has put forward the following proposal:

 the selling price of a table should be increased by 7%, and

 an additional $6,000 should be spent on advertising

The Manager believes that the sales volume (the number of products sold) will
increase to 20,500 tables per month.
 Calculate the expected monthly profit if these changes were made.

Direct Materials Each table requires 4kg of materials.

The materials cost $3 per kg.
Direct Labour An employee takes two hours to complete each table.
Employees are paid $7 per hour.
Machine Time Each table requires 1 hour of machine time.
Machine time costs $3 per hour.
Sales Commission Sales staff receive $5 commission for every table they sell.
Fixed Costs $240,000 + 6000 = 246,000

Selling Price $50 + 7% = 53.5

SP*Q = VC*Q + TFC + PROFIT

53.5*20,500 = 34*20,500 + 246,000 + P

1,096,750 = 697,000+246,000 + P
1,096,750 = 943,000+ P
1,096,750 - 943,000 = P
153, 750 = P