Unit 1: Cost-Volume-Profit Analysis Economics Worksheet With Answers - Cma311s Notes, 2010 Page 17
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27Activity 9
Desert Ltd supplied the following information regarding their three products for the year 2010:
1.
Sales, Variable costs and Contribution:
Product A
Product B
Product C
N$
N$
N$
Sales
600 000
200 000
500 000
Variable costs
590 000
150 000
460 000
Contribution
10 000
50 000
40 000
2.
Fixed costs: N$40 000
Required:
9.1
Plot the relevant information on a Profit-volume graph (P/V chart) and indicate the break-even sales
clearly.
9.2
Check the correctness of your answer by calculating the break-even sales with the aid of an
applicable formula.
Activity 10
Namsa Ltd supplied the following information regarding their three products for the year 2010:
1.
Sales, Variable costs and Contribution:
Product A
Product B
Product C
N$
N$
N$
Sales
100 000
100 000
600 000
Variable costs
70 000
90 000
560 000
Contribution
30 000
10 000
40 000
2.
Fixed costs: N$50 000
Required:
10.1
Plot the relevant information on a Profit graph (P/V chart) and indicate the break-even sales clearly.
10.2
Check the correctness of your answer by calculating the break-even sales with the aid of an
applicable formula.
Cost structure and the operating leverage factor
The concept cost structure refers to the relative relationship between fixed and variable costs in an
enterprise. During recent years the cost structure of manufacturing enterprises has changed in that costs have
become more fixed as a result of automation. More machines and less manual labour are used in production.
Enterprises with a high percentage fixed costs are more sensitive to changes in sales than enterprises with a
low percentage fixed costs. For example, consider a firm with relatively high fixed costs (ie, relatively low
variable costs and consequently a high profit-volume ratio). If sales should increase, profit will increase as a
higher rate than for a firm with relatively low fixed costs, because of the high profit-volume ratio. However,
if sales should drop, profit will also drop at a higher rate because, although variable costs will drop as well,
the fixed costs (rent, salaries, etc) must still be paid.
17
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