Question 1

Champion Co. Ltd manufactures and sells two specialized products, Diesel and Super. The
company expects to sell 12,000 units of Diesel and 8,000 units of Super in the current year.
Diesel is expected to be sold for GH¢25 per unit, while Super is expected to be sold for GH
¢35 per unit. The variable cost per unit for Diesel is GH¢15, and for Super, it is GH¢20. The
total fixed cost for the period is GH¢150,000.
Required:
a. Compute the contribution margin ratio and variable cost ratio for both Diesel and Super.
b. Calculate the overall contribution margin ratio and break-even sales for Champion Co. Ltd
c. Calculate the individual break-even sales for Diesel and Super
d. Determine the margin of safety in cedis for Champion Co. Ltd
Assuming the fixed cost incurred for Diesel was GH¢100,000 and for Super was GH¢50,000
e. If the company wants to achieve a target profit of GH¢60,000 next year, how many units of
Diesel and Super should be sold to meet this target profit?
f. Calculate the company's degree of operating leverage at the present level of sales for both
Diesel and Super.

Question 2
Dynamic Electronics Co. manufactures and sells two electronic products, the Alpha and the
Beta. The company expects to sell 8,000 units of Alpha and 12,000 units of Beta in the
current year. The selling price for Alpha is GH¢40 per unit, while for Beta, it is GH¢30 per
unit. The variable cost per unit for Alpha is GH¢25, and for Beta, it is GH¢18. The total fixed
cost for the period is GH¢130,000.
Required:
a. Compute the contribution margin ratio and variable cost ratio for both Alpha and Beta.
b. Calculate the the overall contribution margin ratio and break-even sales for Dynamic
Electronics Co.
c. Calculate the individual break-even sales for Diesel and Super

Question 3
Due to erratic sales of its sole product – a high-capacity battery for laptop computers – Naya
Ltd has been experiencing difficulty for some time. The company’s contribution income
statement for the most recent month is given below:
Sales (19,500 units * $30 per unit) $585,000
Variable expenses 409,500
Contribution 175,500
Fixed expenses 180,000
Net operating loss $ (4,500)
Required:
a. Compute the company’s CM ratio and its break-even point in both units and dollars.
b. The president believes that a $16,000 increase in the monthly advertising budget,
combined with an intensified effort by the sales staff, will result in an $80,000 increase in
monthly sales. If the president is right, what will be the effect on the company’s net operating
income or loss? (Use the incremental approach in preparing your answer.)
c. The sales manager is convinced that a 10% reduction in the selling price, combined with an
increase of $60,000 in the monthly advertising budget, will cause units sales to double. What
will the new contribution format income statement look like if these changes are adopted?
d. The Marketing Department thinks that a fancy new package for the laptop computers
battery would help sales. The new package would increase packaging costs by 75 cents per
unit. Assuming no other changes, how many units would have to be sold each month to earn a
profit of $9,750?
e. By automating certain operations, the company would reduce variable costs by $3 per unit.
However, fixed costs would increase by $72,000 each month.
i. Compute the new CM ratio and the new break-even point in units and dollars.
ii. Assume that the company expects to sell 26,000 units next month. Prepare two
contribution format income statements, one assuming that operations are not automated and
one assuming that they are.
iii. Would you recommend that the company automate its operations? Explain