Question

QUESTION 3 a) Explain FOUR uses of the cost volume analysis in a company. [8 marks) b) Lizzy Fabrics produces wedding garments. Financial data for its next quarter's operations are given below: Planned output 1,000 units Selling price per unit GH€ 400 Variable cost per unit GH¢325 Fixed costs GH45,000 units sold SP X 03-04/08/17 UNIVERSITY OF CAPE COAST COLLEGE OF DISTANCE E. UGATION EXAMINATIONS ONIT

Answer 1

Correct Answer:

Breakeven point (units)	563 units
Breakeven point (Dollars)	Ghe           2,25,000
Margin of safety	Ghe           1,75,000

Working:

A	Sales Revenue	Ghe                     400
B	Less: Variable cost	Ghe                     320
C=A-B	Contribution margin	Ghe                       80
D =C/A	Contribution margin ratio	20%
E	Fixed Cost	Ghe               45,000
F =E/C	Breakeven point (units)	563
G=E/D	Breakeven point (Dollars)	Ghe           2,25,000
H = ( 1000-F)*400	Margin of safety	Ghe           1,75,000

Requirement 2: Lizzy Fabrics should not start the special promotion as it will decrease the net income by GHE 2000

Working:

	With promotion	Without promotion
Sales Revenue	Ghe                4,10,000	Ghe               4,00,000
Less: Variable cost	Ghe                3,25,000	Ghe               3,20,000
Contribution margin	Ghe                   85,000	Ghe                  80,000
Less:Fixed cost	Ghe                   52,000	Ghe                  45,000
Net income before tax	Ghe                   33,000	Ghe                  35,000

End of answer.

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