Question

Tap Question 5 (8 marks) Pikachu Ltd manufactures plastic toys. The details about one of its toys, the Pokémon ballyes summarised in the table below. Current units sold Selling Price per Pokémon ball Unit variable manufacturing cost Fixed manufacturing cost Unit variable selling & administrative costs Fixed Selling & Administrative costs 13,000 units $4 $2.50 $8,000 $0.50 $2,000 Required: 1. Calculate: a. Unit contribution margin (1 mark) b. Contribution margin ratio (1 mark) 2. Calculate the break-even point in units and a. (1.5 marks) b dollars (revenues). (1 mark) 3. a Explain what margin of safety (MOS) means. (1 mark) b. Calculate MOS in percentage terms given the current sales level of 13.000 units. Round your answer to the nearest percentage. 11.5 marks) Name one variable expense and one fixed expense that you have incurred while studying at university, (1 mark)

Answer 1

Particulars
No. of units sold		13000 units
Selling price per unit      (A)		$           4.00
Total sales ( no. of units x selling price per unit)		$ 52,000.00
Variable cost
Manufacturing cost per unit		$           2.50
Silling and administrative cost		$           0.50
Total variable cost         (B)		$           3.00
Contribution per unit ( A-B)		$           1.00
Total contribution ( no. of units x contribution per unit)	$13,000.00
Fixed cost
Fixed manufacturing cost	$       8,000.00
Fixed selling and administrative cost	$       2,000.00
Total fixed cost		$ 10,000.00
Profit ( total contribution - total fixed cost)		$   3,000.00

1)

a) Unit contribution margin = (Selling price per unit - total varibale cost per unit) = ( $4 * $3) = $ 1 per unit

b) Contribution margin ratio = (Selling priceper unit - Variable cost per unit) / Selling price oer unit

= [($4 -$3) / $4 = 25 %

2)

a) Break even point ( units) = (Total fixed cost / Contribution margin per unit)

= ($10,000 / $ 1)

= 10000 units

b)Break even point (dollars) = (Total fixed cost / Contribution margin ratio)

= ( $10,000 / 25%) = $ 40000

or Break even point (dollars) = (break even points units x selling price per unit)

= ( 10000 units x $4) = $ 40,000

3)

a) Margin of safety is the difference between actual sales and break even sales, it measures the risk of the company, through margin of safety, it can be known that how much decrease in sales of a company would render it unprofitable.

b) Margin of safety ratio (%) = [(Total sales - Break even sales) / Total sales x 100]

= [($ 52,000 - $40,000)/ $ 52,000] x 100

= 23 %

4) Variable expense = expenses which changes with change in no. of units produced

= travelling expenses/tiffin expenses

Fixed expenses = expenses which remains fixed irespecive of no. of units produced

= university fee can be fixed expenses