CVP ANALYSIS

MZUMBE UNIVERSITY
SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE
QUESTION ONE
You were recently hired as an accounting intern at Changarawe. Your boss, Miss Kaundime,
hand you the following information from September operations and ask you to compute gross
margin and contribution margin.
TZS
Variable manufacturing cost of goods sold 50,000
Fixed marketing expense 12,000
Research and development (fixed) 3,000
Sales commissions 2,500
Fixed manufacturing cost of goods sold 20,000
Sales revenue 100,000
Delivery expense (variable) 5,000

QUESTION TWO
The following information is given for Javico, Inc.:
Unit sales price TZS 10,000
Variable cost per unit TZS 6,000
Total fixed costs TZS 50,000,000

Required
Determine the following:
a) Contribution margin per unit
b) Contribution margin ratio
c) Break-even sales in units
d) Break-even sales in dollars
e) Sales in units required to achieve a net income of TZS 4,000,000
f) Sales in units required to achieve a net income of 15 percent of sales

QUESTION THREE
Angles Ltd makes bicycles, the costs and selling price of which are:
Direct materials cost per unit TZS 4,800
Direct labour cost per unit TZS 800
Variable overhead costs per unit TZS 80
Fixed overhead costs TZS 2,960,000
Selling price per unit TZS 14,000
Normal period sales are 500 units but up to 700 units could be made in a period.
Required:
a) What is the company’s BEP (units)?
b) The company’s expected margin of safety.
c) If the company wants to make profit of TZS1,168,000, how many units must be sold?
d) Prepare contribution margin income statement of Angles Ltd

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e) The business has received an offer to sell 650 bicycles. Doing so would reduce selling
price by 10 percent. What advice would you give Angels Ltd concerning the offer, on
the basis of the values of marginal of safety and profit figures

QUESTION FOUR
The following information is given for Quality Electronics, Inc.:
Unit selling price TZS 250,000
Variable cost per unit TZS 130,000
Fixed costs TZS 26,000,000
Tax rate 40%

Required
Determine the number of units that should be produced to achieve an after-tax target income of
TZS 6,000

QUESTION FIVE
Gardner Ltd. budgets to sell three products and has provided you with the following selling
prices and variable costs:

Product Sales Selling price Variable cost

Units per unit per unit
TZS TZS

Bit 800,000 12 7
Bob 1,000,000 11 6
Bolt 1,100,000 8 4

Annual fixed costs are budgeted at TZS 8,000,000.

Required
a. Calculate the total budgeted profit.
b. Calculate the contribution / sales ratio for each product.
c. Calculate the total breakeven sales volume and sales revenue.
d. How many units of each product and in total would Gardner Ltd need to sell to earn a
total profit of TZS 4,200,000?
e. Management are deciding whether or not to spend an extra TZS 300,000 on the
advertising of Product Bolt. It is considering reducing its selling price to 90% of the
current price which will result in an increase in sales of 30%. Advise whether or not it is
financially worthwhile spending TZS 300,000 on the advertising.

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QUESTION SIX
McGann Ltd. manufactures grips for use on hurleys. The following is a budgeted Income
Statement for the business for June 2013:
TZS
Sales Revenue 9,600
Direct Material 4,000
Direct Labour 960
Production Overhead 3,600
Selling Overhead 560 9,120
Profit 480

The following information is also supplied:

1. The monthly budgeted production and sales is 4,000 units.
2. The following breakdown between fixed and variable costs applies:
Variable Fixed
Direct Materials 100% n/a
Labour TZS 400 TZS 560
Production Overhead TZS 1,440 TZS 2,160
Selling Overhead 100% n/a

Required
a. Calculate the following:
I. Contribution for the year;
II. Contribution per unit;
III. Contribution / sales ratio;
IV. Breakeven sales volume;
V. Margin of safety %;
VI. Sales volume required to achieve a profit of TZS 1,440.

b. Prepare a clearly labelled breakeven chart, showing the breakeven point, margin of safety
and expected profit.
c. In deciding whether to make or buy the packaging in which the grips are sold, list any
two qualitative factors that would need to be considered in making this decision.

QUESTION SEVEN
Andrew Manufacturing, Inc., manufactures two products-Baubles and Trinkets. The following
data are projected for the coming year:
Baubles Trinkets Total
Units Amount Units Amount Amount
TZS TZS TZS
Sales 10,000 10,000 8,000 10,000 20,000
Fixed cost 2,000 5,600 7,600
Variable cost 6,000 3,000 9,000
Total cost 8,000 8,600 16,600
Operating income 2,000 1,400 3,400

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Required
a. Determine the break-even sales in units for Baubles, assuming that the facilities are not
used jointly.
b. Determine the break-even sales in dollars for Trinkets, assuming that the facilities are not
used jointly.
c. Calculate the composite unit contribution margin, assuming that consumers purchase
composite units of six Baubles and four Trinkets.
d. Determine the break-even units for both products, assuming that consumers purchase
composite units of six Baubles and four Trinkets.
e. Calculate the composite contribution margin ratio, assuming that a composite unit is
defined as one Bauble and one Trinket.
f. Determine the break-even sales in dollars, assuming that Baubles and Trinkets become
one-to-one complements and that there is no change in the company’s costs.

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