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AA025 Chapter AT4

This document contains 5 questions regarding cost-volume-profit (CVP) analysis for various companies. Question 1 involves calculating break-even points and margin of safety for Mahmud Al Basri company. Question 2 does the same for Hassan Company using both mathematical equations and contribution margin. Question 3 analyzes three options to increase net income for Ikhwani Company. Question 4 calculates various CVP metrics like break-even points, margin of safety, and sales required for profit targets for Bakti Rima Sdn Bhd. Finally, Question 5 analyzes store-level CVP for Shirts Unlimited under different commission and salary structures.

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32 views3 pages

AA025 Chapter AT4

This document contains 5 questions regarding cost-volume-profit (CVP) analysis for various companies. Question 1 involves calculating break-even points and margin of safety for Mahmud Al Basri company. Question 2 does the same for Hassan Company using both mathematical equations and contribution margin. Question 3 analyzes three options to increase net income for Ikhwani Company. Question 4 calculates various CVP metrics like break-even points, margin of safety, and sales required for profit targets for Bakti Rima Sdn Bhd. Finally, Question 5 analyzes store-level CVP for Shirts Unlimited under different commission and salary structures.

Uploaded by

norismah isa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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CHAPTER 4 : COST VOLUME PROFIT ANALYSIS

Question 1

Mahmud Al Basri company estimates that variable costs will be 50% of sales and fixed costs
total is RM800,000. The selling price of product is RM4.

REQUIRED:

a) Calculate the break-even point in unit and ringgit.


b) Calculate the margin of safety in ringgit, assuming actual sales are RM 2,000,000.

Question 2

Hassan Company sells for RM 20.00 each. For the coming next year, management expects
fixed costs to be RM220,000 and variable costs to be RM 9.00 per unit.

REQUIRED:

a) Calculate break-even point in ringgit and unit using mathematical equation.


b) Calculate break-even point in ringgit and unit using contribution margin.
c) Calculate the margin of safety percentage assuming actual sales are RM500, 000.
d) Calculate the sales required to earn net income of RM 165,000.

Question 3

Ikhwani Company reports the following operating result for the month of August:
Sales RM300,000 (units 500); variable costs RM210,000 and fixed costs RM80,000.
management is considering the following independent course of action to increase net
income.

i) Increase selling price by 10% without change in total variable costs.


ii) Reduce variable costs to 65% of sales.
iii) Reduce fixed costs by RM10,000.

REQUIRED:

Calculate the net income to be earned under each alternative. Which course of action will
produce the highest net income?

Question 4

Bakti Rima Sdn Bhd (BRSB) provides some of their expected operating information for 2016
as follows:

Total Per unit


RM RM
Sales 400,000 40
(-) variable costs (240,000) (24)
Contribution margin 160,000 16
(-) fixed costs (128,000)
Net profit 32,000
REQUIRED:

i) Calculate break even point in unit and ringgit.


ii) Prepare and label the graph of profit volume cost based on information (i).
iii) Calculate the margin of safety BRSB in ringgit based on profit target for 2016.
iv) Calculate the sales required to earn net income of RM 6 0,000.
v) Based on original information, calculate the unit that should be sold if BRSB
wants to earn net income equivalent to 20% on sales.
vi) Prepare profit or loss based on answer (v)
vii) State four (4) assumptions in the cost profit volume

Question 5

Shirts Unlimited operates a chain of shirt store around the country. The stores carry many
styles of shirts that are all sold at the same price. To encourage sales personal to be
aggressive in their sales efforts, the company pays a substantial sales commission on each
shirt sold. Sales personnel also receive a small basic salary.

The following cost and revenue data relate to store 36 and typical of one of the company’s
many outlets:

Per shirt

Sales price RM40

Variable expenses:
Invoice cost RM18
Sales commission 7

Total variable expenses 25

Fixed cost:
Per Year

Rent RM 80,000
Advertising 150,000
Salaries 70,000

Total fixed expenses RM 300,000

Shirts Unlimited is a fairly new organization. The company has asked you, as a member of
its planning group, to assist in some basic analysis of its stores and company policies.

a) Calculate the annual break even point in ringgit and unit sales for Store 36.
b) Prepare a CVP graph showing the break- even point on the graph.
c) If 19,000 shirts are sold in a year, what would be Stores 36’ net income or loss.
d) The company is considering paying the store manager of Store 36 an incentive
commission of RM3 per shirt (in addition to the salespersons’ commission). If this
change is made, what will be the new break even point in ringgit and unit.
e) Refer to the original data. As an alternative, the company is considering paying the
store manager a RM3 commission on each shirt sold in excess of break even point. If
this change is made, what will be the store’s net income or loss if 23,500 shirts are
sold in a year.
f) Refer to the original data. The company is considering eliminating sales commission
entirely in its stores and increasing fixed salaries by RM 107,000 annually.
i) If this change is made, what will be the new break even point in ringgit and
unit in Store 36.
ii) Would you recommend that the change be made. Explain.

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