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Module 9 - In-Class Exercises - CVP

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23 views

Module 9 - In-Class Exercises - CVP

Uploaded by

lengocanhkh
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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BUSM4155 Financial Analytics for Managerial Decisions

In-class Exercises

Module 9: Cost-volume-profit analysis for decision making

1. QAZ Ltd sells umbrellas. The variable cost per umbrella is $2.50. Each umbrella sells for $7.50.
The fixed costs for 1 month are $6,000 QAZ’s manufacturing capacity is 2000 umbrellas per month
a. What is contribution margin?
CM = RV – VC = 5
b. What is the number of umbrellas to be produced and sold to break even?
CM per unit = 6000/5 = 1200
c. How many umbrellas need to be sold to make a profit of $1,500?
R = VC + FC + 1500
A x 7,5 = 2,5 x A + 6000 + 1500
A= 1500
d. Can QAX make a profit of $7,000 per month?

2. KJH Ltd produces and sells widgets. Each widget sells for $4.50. For the 2018 financial year costs
and expenses for the sale of 2,000,000 widgets are set out in the table below.

Total Costs Variable Fixed


Cost of goods sold $6,100,000 $4,100,000 $2,000,000
Selling Expenses 800,000 290,000 510,000
Administrative Expenses 300,000 10,000 290,000
$7,200.000 $4,400,000 $2,800,000

a. What profit did KJH Ltd make in 2018 from the sale of widgets?
P = R – C = 4.5x2000000 – 14400000 = -5,400

b. How many widgets were needed to be sold to break even?


TR = FC + TC
4,5x = 2800000 +

c. If a profit of $2.5 million was required, how many widgets should KJH Ltd have sold?

3. Sunny Ltd sells ice creams. Each ice cream sells for $5, and the variable cost per ice cream is $2.
Fixed costs are $2000 per week.

Sweet Ltd also sells ice creams. Each ice cream sells for $5, and the variable cost per ice cream is
$3.50 Fixed costs are $500 per week.

Each company sells 1000 ice creams per week.

1
a. How much profit per week does each company make?
b. How much profit would each company make is sales were to increase by 20%?
c. Express the increase in profit as a percentage for each company?
d. Why are the percentage figures different?

2
4. Sunny Ltd sells ice creams. Each ice cream sells for $5, and the variable cost per ice cream is $2.
Fixed costs are $2000 per week.

Sunny is considering a special promotion for Mondays and Tuesdays – its days of weakest sales. It
would offer – buy one ice cream and pay only $1 for the second ice cream. Its present sales on
Mondays and Tuesdays are 50 ice creams per day. It is assumed that 50% of customers would opt
for the extra ice cream.

How many customers per day would Sunny have to attract on days of the promotion to make this
promotion worthwhile? How many ice creams would be sold?

5. Excellent Gourmet Bakery Pty Ltd, trading as EGB, makes pies. At present it has an average
output of 3000 pies per week.

EGB presently makes its own pastry. Its cost accountant has provided management with the
following breakdown for pastry production per pie, based on the average output:

Direct materials $0.08


Direct labour $0.80
Variable overhead $0.07
Allocated fixed overhead $0.20
Total unit cost $1.15

A specialty pastry maker has provided EGB with a quote for pastry of $1.00 per pie.

a. Should EGB accept the quote an outsource pastry production?


b. What assumptions have you made?
c. Would your answer be different if the pastry could be supplied for $0.90 per pie?

6. BFP Ltd sells two items only. Item A has variable costs of $10 per item and sells for $17.50. Item
B has a variable cost of $15 per item and sells for $25. BFP Ltd’s fixed costs are $68,000 per
month. For every 100 items BFP Ltd sells, 60 are Item A and 40 are Item B.

What is the break-even number of items BFP Ltd must sell every month?

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