COST VOLUME PROFIT ANALYSIS

ILLUSTRATION ONE
Lee enterprises operate in the leisure and entertainment industry and one of its activities is to
promote concerns at locations throughout the world. The Company’s estimated fixed costs are
sh.60, 000; these includes the fees paid to performers, the hire of the venue and advertising costs.
Variable cost is sh.10 per ticket sold. The proposed price for the sale of a ticket is sh.20.The
management of Lee has requested the following information;
(i)The number of tickets that must be sold to break even
(ii)How many tickets must be sold to earn sh.30,000
(iii)What profit would result if 8000 tickets were sold
(iv)What selling price would have to be charged to give a profit of sh.30,000 on sales of 8000
tickets, fixed costs pf sh.60,000 and variable costs of sh.10 per ticket.
(v)How many additional tickets must be sold to cover the extra cost of television advertising of
sh.8,000

ILLUSTRATION TWO
A small kiosk sells a single type of meal for sh.200 per plate. The cost of ingredients are sh.40
per plate while cooks and waiters are paid based on number of plates sold at sh.30 per plate The
only significant fixed cost is rent at sh.260,000 per month. Management is budgeting sale of
5,000 plates each month. Required;
a)Breakeven number of plates per month.
b)Contribution margin ratio/ C/S ratio
c)Breakeven sales in shillings
d)No of plates that must be sold for a profit of sh.520,000
e)Budgetted profits per month
f)Margin of safety as percentage of budgeted sales.
g)Suppose fixed costs increase by.sh 40,000,cost of ingredients decrease by 50%and workers
wages increase by 20%,advice on the selling price per plate to be set on the budgeted sales to
maintain the original budgeted profits.
g.After the changes,calculate the new break even number of plates.