MZUMBE UNIVERSITY

SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE

ACC 222: COST AND MANAGEMENT ACCOUNTING II

COST VOLUME PROFIT ANALYSIS TUTORIAL QUESTIONS

Question 1
The following information is given for Egele-Kamp, Inc.:
Unit sales price TZS 10
Variable cost per unit 6
Total fixed costs 50,000

Required
Determine the following:
a. Contribution margin per unit
b. Contribution margin ratio
c. Break-even sales in units
d. Break-even sales in dollars
e. Sales in units required to achieve a net income of TZS 4,000
f. Sales in units required to achieve a net income of 15 percent of sales

Question 2
The following data are given for Miratel Design, Inc., which markets multiple products:
Sales TZS 65,000
Variable expenses 39,000
Total fixed costs 12,000

Required
Compute
a. the contribution margin ratio and
b. Break-even sales in Tanzanian Shillings.

Question 3
The following information is given for Quality Electronics, Inc.:
Unit selling price TZS 250
Variable cost per unit 130
Fixed costs 26,000
Tax rate 40%

Required
Determine the number of units that should be produced to achieve an after-tax target
income of TZS 6,000
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Question 4
The Anderson Company has recently purchased a plant to manufacture a new product. The
following data pertain to the new operation:
Estimated annual sales 3,500 units @TZS 20

Estimated costs:
Direct materials TZS 6.00/unit
Direct labour TZS 1.00/unit
Factory overhead (all fixed) TZS 12,000 per year
Selling expenses 30% of sales
Administrative expenses (all fixed) TZS 16,000 per year

Required
Determine
a. the break-even point in units and in dollars and
b. the selling price if profit per unit is TZS 2.04.

Question 5
Gardner Ltd. budgets to sell three products and has provided you with the following selling prices
and variable costs:

Product Sales Selling price Variable cost

Units per unit per unit
TZS TZS

Bit 800,000 12 7
Bob 1,000,000 11 6
Bolt 1,100,000 8 4

Annual fixed costs are budgeted at TZS 8,000,000.

Required
a. Calculate the total budgeted profit.
b. Calculate the contribution / sales ratio for each product.
c. Calculate the total breakeven sales volume and sales revenue.
d. How many units of each product and in total would Gardner Ltd need to sell to
earn a total profit of TZS 4,200,000?
e. Management are deciding whether or not to spend an extra TZS 300,000 on
the advertising of Product Bolt. It is considering reducing its selling price to
90% of the current price which will result in an increase in sales of 30%. Advise
whether or not it is financially worthwhile spending TZS 300,000 on the
advertising.

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Question 6
McGann Ltd. manufactures grips for use on hurleys. The following is a budgeted Income
Statement for the business for June 2013:
TZS
Sales Revenue 9,600
Direct Material 4,000
Direct Labour 960
Production Overhead 3,600
Selling Overhead 560 9,120
Profit 480

The following information is also supplied:

1. The monthly budgeted production and sales is 4,000 units.
2. The following breakdown between fixed and variable costs applies:
Variable Fixed
Direct Materials 100% n/a
Labour TZS 400 TZS 560
Production Overhead TZS 1,440 TZS 2,160
Selling Overhead 100% n/a

Required
a. Calculate the following:
I. Contribution for the year;
II. Contribution per unit;
III. Contribution / sales ratio;
IV. Breakeven sales volume;
V. Margin of safety %;
VI. Sales volume required to achieve a profit of TZS 1,440.

b. Prepare a clearly labelled breakeven chart, showing the breakeven point,

margin of safety and expected profit.

c. In deciding whether to make or buy the packaging in which the grips are sold,
list any two qualitative factors that would need to be considered in making this
decision.

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Question 7
Sweeney Ltd. manufactures street lamps for the City Council. The following is the budgeted
Income

Statement for the business for December 2015:

TZS '000 TZS '000
Sales Revenue 21,200
Direct material 10,000
Direct labour 3,920
Production overhead 1,720
Selling overhead 2,120 17,760
Profit 3,440

The following information is also supplied:

1. The monthly budgeted production and sales is 5,000 units.
2. Fixed and variable costs can be broken down as follows:

Variable Fixed

% %
Direct materials 100 -
Labour 30 70
Production overhead 40 60
Selling overhead 100 -

Required
a. Calculate the following:
I. Total contribution for the year;
II. Contribution per unit;
III. Contribution / sales ratio;
IV. Breakeven sales volume;
V. Margin of safety %;
VI. Sales volume required to achieve a profit of TZS 2,960,000.

b. Prepare a clearly labelled breakeven chart, showing the breakeven point, margin
of safety and expected profit.

c. CVP analysis is based on a number of underlying assumptions and limitations

that affect its validity. List four limitations of CVP analysis.

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Question 8
Venus plc. is reviewing its portfolio of products and has provided you with the following
information in relation to budgeted sales for the product Pisces.

Sales units 100,000

TZS
Sales price per unit 15
Variable costs per unit 11
Net profit/loss 140,000

In order to assist the sales manager with further analysis, you are asked to prepare a number of
calculations relative to this product line.

Required
a. Calculate the total fixed costs attributable to Pisces.
b. Calculate the Contribution/Sales ratio for Pisces.
c. Explain the term ‘breakeven’ and calculate the breakeven point for the product
Pisces expressed in both sales units and sales turnover.
d. Explain the term ‘margin of safety’ and calculate the margin of safety
percentage for Pisces.
e. Venus plc. is considering a policy of requiring a target profit of 20% of turnover
on all business lines. Calculate the activity required by the product Pisces in
order to generate this target profit.
f. Cost Volume Profit (CVP) analysis is a model that is designed to help with
decision-making. However it is not without its assumptions and limitations that
affect its validity. List four limitations of CVP analysis.

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Question 9
Andrew Manufacturing, Inc., manufactures two products-Baubles and Trinkets. The following data
are projected for the coming year:
Baubles Trinkets Total
Units Amount Units Amount Amount
TZS TZS TZS
Sales 10,000 10,000 8,000 10,000 20,000
Fixed cost 2,000 5,600 7,600
Variable cost 6,000 3,000 9,000
Total cost 8,000 8,600 16,600
Operating income 2,000 1,400 3,400

Required
a. Determine the break-even sales in units for Baubles, assuming that the
facilities are not used jointly.
b. Determine the break-even sales in dollars for Trinkets, assuming that the
facilities are not used jointly.
c. Calculate the composite unit contribution margin, assuming that consumers
purchase composite units of six Baubles and four Trinkets.
d. Determine the break-even units for both products, assuming that consumers
purchase composite units of six Baubles and four Trinkets.
e. Calculate the composite contribution margin ratio, assuming that a composite
unit is defined as one Bauble and one Trinket.
f. Determine the break-even sales in dollars, assuming that Baubles and Trinkets
become one-to-one complements and that there is no change in the company’s
costs.