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Tutorial 8 CVP Answer Q3

This document provides a suggested solution to a tutorial question involving the calculation of variable and fixed costs. It calculates the variable cost per unit to be RM15,000 based on the difference in total costs and units sold between two scenarios. The fixed costs for a six month period are calculated to be RM1,200,000. The break-even point is calculated to be 80 units. It is determined that profits would decline by RM520,000 if the selling price was reduced based on sales of 130 units at the new price. Advantages of graphical presentation are emphasized and limitations to the assumptions of variable and fixed costs are noted.

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55 views2 pages

Tutorial 8 CVP Answer Q3

This document provides a suggested solution to a tutorial question involving the calculation of variable and fixed costs. It calculates the variable cost per unit to be RM15,000 based on the difference in total costs and units sold between two scenarios. The fixed costs for a six month period are calculated to be RM1,200,000. The break-even point is calculated to be 80 units. It is determined that profits would decline by RM520,000 if the selling price was reduced based on sales of 130 units at the new price. Advantages of graphical presentation are emphasized and limitations to the assumptions of variable and fixed costs are noted.

Uploaded by

yongjin95
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Tutorial 8 Q3 Suggested solution

Metro Home Bhd


(a)
Sales @ RM30,000
Less profit (given)
Total costs (difference)

Low (16 units)


RM
480,000
40,000
440,000

High (30 units)


RM
900,000
250,000
650,000

Difference in Total Costs


Variable cost per unit = Difference in Sales Units
RM650,000 RM440,000
=
30 units 16 units
=
RM 15,000 / unit
Fixed Cost incurred, say, in March
= Total Costs incurred in March Total Variable Costs incurred in March
= RM650,000 30 units x RM15,000/unit
= RM200,000.
Therefore, total fixed costs incurred over the 6-month period ended 30.6.2013
assuming the monthly fixed cost is constant.
= 6 months x Fixed Cost per month
= 6 months x RM200,000/month
= RM1,200,000
(b)

Break-even sales in units =

Total Fixed Costs For 6 Months


Contribution Per Unit
RM 1,200,000
= (RM30,000 RM15,000)/unit
= 80 units

(c)

Total profit at (new) higher sales units Total profit at existing sales units
= 130 units x1.10 x RM (15,000 5,000)/unit 130 units x RM15,000/unit
= RM1,430,000 RM1,950,000
= - RM520,000
Decision: the selling price should not be reduced because profits will decline by
RM520,000.

(d) The advantages are:


(i) The information can be absorbed at a glance without the need for detailed
figures.
(ii) Essential features are emphasized.
(iii) The graphical presentation can be easily understood by non-accountants.
(e)

Costs may not be variable and fixed throughout the entire production range or
period. For example:
Unit raw material variable cost may not be constant because of
(i)
bulk discounts on purchases , or
(ii)
demand is greater than supply
Fixed costs such as rent may increase or decrease
(i)
in the next accounting period according to the situation in the building
rental market, or

(ii)

in the next production when there are changes in the demand for
building space due to changes in production output.

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