Unit 1: Cost-Volume-Profit Analysis Economics Worksheet With Answers - Cma311s Notes, 2010 Page 6
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27Y
120
Break-even point
At sales of N$192 000
Profit area
Profit
80
Loss area
(N$’000)
40
0
3 000
6 000
9 000
12 000
X
Units of Production and Sales
40
Loss
(N$’000)
80
Fixed cost = N$78 000
120
1
Y
1.3.1
Proposal 1: Total contribution = (90% x 12 000 units x N$9)
= N$97 200
Less fixed overheads
= N$78 000
Net income
= N$19 200
1.3.2
Proposal 2: Total contribution = (12 000 units x N$8,20)
= N$98 400
Less fixed overheads = (N$78 000 + N$5 000)
= N$83 000
Net income
= N$15 400
Recommendation:
Based on the above information management should adopt the original budget plan as this yields the
largest profit.
1.4.1 Contribution = 12 000 units x N$13
= N$156 000
Less fixed costs (N$78 000 + N$15 000)
= N$ 93 000
Net income
= N$ 63 000
Recommendation:
This proposal yields the largest profit and therefore should be accepted.
1.4.2 However, there is a risk that the estimated sales demand will not be obtained and this could result in a
reduced profit since the N$15 000 will be a committed cost irrespective of the outcome.
Management would need some assurance that the market research company is reliable and has a good
track record.
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