Unit 1: Cost-Volume-Profit Analysis Economics Worksheet With Answers - Cma311s Notes, 2010

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CMA311S – NOTES 2010. UNIT 1: COST-VOLUME-PROFIT ANALYSIS
Example 1: Tokio Ltd manufactures and sells only one product. The product is sold at N$10 per unit. Other
details are as follows:
Variable cost per unit
N$5
Fixed cost per month
N$20 000
Normal sales per month
6 000 units
Required:
1.
Calculate the contribution per unit.
2.
Calculate the contribution ratio (P/V ratio).
3.
Calculate the break-even point in units.
4.
Calculate the break-even point in sales value (N$).
5.
Calculate the margin of safety and the margin of safety ratio.
6.
Draw a break-even graph which clearly indicates the break-even point.
7.
Calculate the net profit per month if 5 000 units are sold.
8.
Suppose the variable cost increases to N$6 per unit and the fixed cost decreases to N$18 000.
8.1
Calculate how many more units have to be sold in order to break-even.
8.2
Calculate the number of units to be sold in order to earn a net profit of N$7 500 per month.
Solution to Example 1
1.
Contribution per unit = Selling price per unit – variable cost per unit
= N$10 – N$5
= N$5
2.
Contribution ratio = Contribution per unit ÷ Selling price per unit
= N$5 ÷ N$10
= 0,5 (or 50%)
3.
Break-even point (in units) = Fixed cost ÷ Contribution per unit
= N$20 000 ÷ N$5
= 4 000 units
4.
Break-even point (in sales value) = Fixed cost ÷ Contribution ratio
= N$20 000 ÷ 0,5
= N$40 000
OR
Break-even point (in sales value) = Break-even units x Selling price per unit
= 4 000 x N$10
= N$40 000
5.
Margin of safety (in units) = Sales – Break-even sales
= 6 000 – 4 000
= 2 000 units
OR
Margin of safety (in sales value) = Sales – Break-even sales
= N$60 000¹ – N$40 000
= N$20 000
¹ Normal sales = 6 000 units x N$10
Margin of safety ratio = (Margin of safety ÷ Sales) x 100%
= (2 000 ÷ 6 000) x 100%
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