ACB 10203 : MANAGEMENT ACCOUNTING

TUTORIAL CVP

Question 1

Babamar Shoe Sdn. Bhd. (Babamar Shoe) operates a chain of shoe store that sells of
men’s shoes with fixed selling price. Each store has a store manager who is paid a fixed
salary. Salesperson receives a fixed salary and a sales commission. In 2020, Babamar Shoe
is considering opening another store that is expected to have the revenue and costs shown
below;

Variable Data per unit (per pair of shoe) Annual fixed costs
(RM) (RM)
Selling price 60.00 Rent 120,000
Cost of shoes 39.00 Salaries 400,000
Sales commission 3.00 Advertising 160,000
- - Other fixed cost 40,000

Required:

a) Compute the breakeven point in unit and RM.

BEP = FC/CM = 720,000/60- 42 = 40,000 unit
BEP in RM : 40,000 X RM 60 = 2.4 Million
b) Prepare the contribution income statement to compute the store’s operating income
(loss) if 35,000 units are sold.

Sales (35,000 x 60) = 2,100,000

VC (35,000 x 42) = 1,470,000
CM = 630,000
FC = 72,0000
NI = - 0.09 m
c) Refer to (b), compute the company’s operating leverage.
DOL = 0.63 m / ( - 0.09 m) = 7

d) Compute the new breakeven point in unit if sales commission are discontinued and
fixed salaries are raised by a total of RM81,000.
New VC – 39
New FC – 801,000

New BEP = FC New/CM

= 801,000/ 21
= 38,143 unit

e) Based your answer in (a). If, in addition to his fixed salaries, the store manager is
paid of RM0.30 per unit for sales commission in excess of the breakeven point.
Compute the store’s operating income if 50,000 units were sold.
 Sales (50,000 x 60) = 3,000,000
VC (50,000 x 39) = 1,950,000
Sales com (10000 x 0.30) = 3,000
CM = 1,047,000
FC = 801,000
NI = 246,000

Question 2

Aman plans to start a mobile apam balik business in two months’ time after completing his
college degree. He does not need to purchase a van because his uncle has agreed to loan
him the van for two years without charge. However, Aman has to pay only for the fuel
consumption of the van. He estimated the following costs for each month of operation:

Monthly costs RM
Business license 10.00
Salary for his assistance 150.00
Cost of van fuel 50.00
Cost of cooking gas 50.00

Costs per apam balik RM

Flour 0.18
Sugar 0.10
Ground nuts 0.10
Oil 0.05
Other ingredients 0.10
Wrapping plastic 0.07

Aman sets the selling price at RM 1.20 per apam balik because he founds that this is the
most popular price of apam balik in the surrounding area of his business.

Required:

a) How many units of apam balik does Aman sell in order to achieve a profit of RM1,000
per month?

b) Aman intends to reduce the price to RM1.00 per apam balik if he sells in a rural area.
What is the break- even point in units and RM if he operates in the rural area?
c) During inflation, Aman estimates the cost per apam balik will increase by 20 percent.
How many units of apam balik need to sell if Aman does not want to earn any profit
and loss during the inflation?

d) During a wet month, Aman estimates that he can only sell 1,800 apam balik per
month in the urban area. How much is his profit during the wet month?

e) Briefly explain three (3) assumptions used in cost volume profit analysis.

Notes: Assume situation in (a) until (d) are independent of each other.

Question 3

Jati Sdn Bhd produces and sells a single product. The company's income statement for the
most recent month is given below:
RM RM
Sales (6,000 units at RM40 per unit) 240,000
Less manufacturing costs:
Direct materials 48,000
Direct labor (variable) 60,000
Variable factory overhead 12,000
Fixed factory overhead 30,000 150,000
Gross margin 90,000
Less selling and other expenses:
Variable selling and other expenses 24,000
Fixed selling and other expenses 42,000 66,000
Net operating income 24,000

There is no beginning or ending inventories.

Required:

a)Redraft the company's income statement in contribution margin format.

b)Compute the company's monthly break-even point in units of product.

c)What would the company's monthly net operating income be if sales increased by 25%
and there is no change in total fixed expenses?
 d)The company has decided to automate a portion of its operations. The change will
reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed
factory overhead. Compute the new break-even point in units.

QUESTION 4

MESRA KIDs is a day care center that provide a safe and secure environment with quality
caregivers, so that parents have the peace of mind of knowing their children are safe while
they work. MESRA Kids charge each parent RM400 per child per month.

Its monthly variable expenses per child are as follows:

RM
Lunch and snacks 100
Educational supplies 30
Other supplies 20
Total 150

Monthly fixed expenses consist of the following:

RM
Rent 2,500
Utilities 250
Insurance 200
Staff salaries 4,100
General expenses 450
Total 7,500
Required:

SP = 400, VC = 150, FC = 7500

a) Compute the breakeven point in unit and RM.

b) Compute the number of children, if the MESRA Kids target the net operation income
is RM5,000 per month.

c) MESRA Kids lost its lease and had to move to another building. Monthly rent for a
new building is increase to RM3,500 per month. MESRA Kids also plans to take
children on field trips every month and its cost is RM1,100 per month. Compute the
new monthly charge per child to meet the target operating income of RM5,000 per
month, assuming the same number of children as in requirement (b).

d) Refer to the original data, if the lunch and snack expenses increase by 20% due to
increasing price of raw material. Compute the number of children if the MESRA Kids
to meet the target operating income of RM5,000 per month.

e) Briefly explain THREE (3) benefits Cost Volume Profit analysis to the business.

Question 5

In 2017, two young entrepreneurs from UniSZA realised that almost every university
students in the campus loves ice blend Cendol Durian and Fruity Shake. So, they opened
Juicy Stop Café in their campus. The innovative idea of mixing the ice blend with cendol and
local fruit attracted many students and outside customers at almost any time of the day.

After two years in operations, in 2019 Juicy Stop Cafe is considering adding a Fruity Yogurt
to its ice blend line with the following unit price and cost information.

Cendol Fruity Fruity

Durian Shake Yogurt
(RM) (RM) (RM)

Selling Price 5.50 5.00 6.00

Variable cost per unit 1.75 2.50 4.00

CM
The fixed production cost is based upon an absorption rate of RM10 per direct labor hour
and total annual production activity of 3,600 direct labor hours. One-twelfth of the annual
fixed production cost will be incurred during the current month of April 2019. The current
sales mix ratio is 2 Cendol Durian (: 2 Fruity Shake: 1 Fruity Yogurt.

Required:
a) Determine the monthly fixed production cost for April 2019.
FC = 3600 / 12 = 300 x 10 = 3000

b) Compute the weighted average unit contribution margin

WACM unit = [(5.5 – 1.75) x 40%] + [ ( 5 – 2.5) x 40%] + [ (6-4) x 20%]
= 1.5 + 1 + 0.4 = 2.9

c) Calculate the break even points in units and value (RM) for each of the product.

BEP in unit = FC/ WACM = 3,000/2.9 = 1,034

Cendol = 1,034 x 40% = 414
Fruity shake = 1,034 x 40% = 414
Fruity yogurt = 1,034 x 20% = 206

BEP in RM = FC/ WACM ratio = 3,000/0.5394= 5,561

Cendol = 1,034 x 40% = 414 x RM 5.5 = RM 2277
Fruity shake = 1,034 x 40% = 414 x RM 5 = RM 2070
Fruity yogurt = 1,034 x 20% = 206 x RM 6 = RM 1236

d) Determine how many units of product Fruity Yogurt must be sold if the company aims
to make a profit of RM5,000.
Sales in unit = TP +FC/WACM = 5,000 + 3,000/ 2.9 = 2,759
Yogurt = 2,759 x 20% = 551
Cendol = 2,759 x 40% = 1,104
Fruity = 2,759 x 40% = 1,104

e) Refer to unit in (d) If the fixed costs increased up to 10% next year and variable cost
for Cendol Durian increase to 20%, should the Juicy Stop Café increase the selling
price for Cendol Durian for the next year . Prepare the contribution margin income
statement for the year ended 2020, and assume that sales mix remain unchanged.

New FC – 3,000 x 1.1 = 3,300

New VC cendol = 1.75 x 1.2 = 2.10
Cendol Fruity Yogurt Total
Sales 1,104 x 5.5 1.104 x 5 551 x 6 14,898
= 6,072 = 5,520 =7,306
VC 1,104 X 2.1 1,104 X 2.5 551 x 4 7,282
= 2318 = 2760 = 2204
CM 3754 2760 5102 11,616
FC 3,300
NI 8,316

f) Explain TWO (2) important uses of cost-volume-profit analysis to the business.