Bersatu Ltd. Case

Tutorial Questions: CVP

Question 1

Bersatu Ltd. Manufactures a single product, a steel bar, which sells for RM10 at 75% capacity, which is the normal level of activity for the factory, sales are at RM600,000.

The cost of these is as follows:

Direct cost per unit                        RM3

Production costs                         RM156,000 (including variable cost of RM80,000)

Sales costs                                 RM80,000 (including variable cost of sales

       commission which is 5%of sales value)

Distribution costs                         RM60,000 (including variable costs of RM15,000)

Administration costs                         RM40,000 (including variable costs of RM9,000)

Required:

1. Calculate the breakeven of sales in units.

1. Prepare statements to show the revenue, contribution and profit in the following circumstances:

i)         At the normal level of activity.

ii)        If the sales price is reduced by 7% and the sales volume thereby

increased by 20% above the normal level activity.

1. Calculate the contribution/sales ratio in each instance in (b) above.

Question 2

1. Horizon Berhad manufactures exclusive alarm clocks. After a number of successful years they are considering expanding their production capability by a factor of 40% to take advantage of the rising demand. The accountant has produced the following information:

1. The current sales per year are 5,000 units at Rm170.00 per unit.
2. The variable costs are RM100.00 per unit
3. The fixed costs are RM210,000 per year.
4. If production is increased it is anticipated that:

1. Fixed costs will increase by RM82,500
2. Variable costs are expected to fall by RM5.00 per unit due to the bulk purchasing of raw materials.
3. The selling price is expected to fall by RM10.00 per unit.

Required:

1. For both the present and proposed situations, calculate:

1. The breakeven point in units and in sales revenue.
2. The annual profit
3. The margin of safety

1. On the basis of your answer to part 9a), state with reasons what would be your advice to Horizon Berhad.

1. If a sales commission of RM2.00 per unit for each alarm clock was to be introduced, how many additional units of alarm clocks need to be sold in order to earn the same net income as per the proposed situation?

1. If the firm wants to hold the selling price constant as the present situation it needs to incur additional advertising costs. What is the maximum advertising cost allowed under the proposed condition?

1. Dina Sdn. Bhd. produces and sells home exercise products that are the how-to videos and an equipment set (consisting of a mat and a ball). Last year, dina sold 10,000 videos and 5,000 equipment sets. Estimated information on the two products for this year is as follows:

Required:

Calculate the breakeven quantity of each product for the current year, assuming that the sale mix remains the same as previous year.

Question 3 (June 2000)

Warna Warni produces 3 designs of household titles. The unit costs and selling prices for the 3 products are as follows:

                                Floral                        Modern                Heavy-Duty

Unit manufacturing costs:         RM                          RM                            RM