Question

TOTAL (RM) Per Unit(RM) Percent of Sales Sales (10,000 units300,00 Less variable expense 90,000 Contribution margin Less fixed expenses 100,000 Net operating income 110,000 30,00 9,00 21.00 100 210,000

Calculate:

1)Contribution margin (CM)ratio and variable expense ratio.

2)Break-even point (BEP) in UNIT SALES and RM ( ) using equation method.

3)If sales increase by RM60,000 for the next month and there is no change in the cost behavior patterns, how much will the company’s net operating increase by using the Contribution Margin (RM)Ratio.

4)Based on the original data, if the company wants to earns a minimum profit of RM300,000, HOW many units will have to be sold to meet this target profits figure?

5）Calculate the company’s margin of safety in both RM( )and percentage base on the original data.



6)In another strategy to increase sales and profit, the   company decided to increase the quality of the product by upgrading the variable costs by RM5 per unit. The company however has to terminate one (1)production supervisor who is paid RM12,000 per year. The sales manager estimates that the higher-quality product will increase the annual sales by at least 10%.
A) Assuming that changes are made as described in (f)above, prepare a projected income statement. The projected income statement must include the total, per unit, and percentage basis.

B) Calculate Break Even Point (BEP)IN both units and RM of sales by using the Contribution Margin. (CM)method.

C)Should the company made the changes? Why?

Answer 1

Income Statement
Particulars	Total	Units	Price
Sales	300,000	10,000	30
Variable Expenses	(90,000)	10,000	(9)
Contribution	210,000	10,000	21
Fixed Cost	(100,000)
Net Operating Income	110,000
Solution No. 1
Contribution Margin Ratio (Profit Volume Ratio)	70%
[Contribution/ Sales]X100
Variable Expense Ratio (Variable Expense/ Sales)	30%
Solution No. 2
Break Even Point (in Units)	4,762
[Fixed Costs/Contribution per unit]
Break Even Point (in RM)	142,857
[Fixed Costs/ Profit Volume Ratio]
Solution No. 3
Particulars	Revised sales
Sales	360,000
Variable Expenses	(108,000)
Contribution	252,000
Fixed Cost	(100,000)
Net Operating Income	152,000
Existing Net Operating Profit	110,000
Incremental Net Operating Income	42,000
Solution No. 4
Particulars	Amount
Sales Value at Desired Profits	571,429
[Desired Profits + Fixed Costs]/Profit Volume Ratio
Selling Price	30
Number of Units to be sold	19,048
Solution No. 5.
Particulars	Original	Solution No. 3	Solution No. 4
Actual Sales	300,000	360,000	571,429
Less: Break-even Sales	(142,857)	(142,857)	(142,857)
Margin of Safety	157,143	217,143	428,571
% tage	52.38%	60.32%	75.00%
Solution No. 6
Part (a)
Projected Income Statement
Particulars	Projected RM	Per unit	% tage
Sales	330,000	30	100%
Variable Expenses	(154,000)	(14)	-47%
Contribution	176,000	16	53%
Fixed Cost	(88,000)	(8)	-27%
Net Operating Income	88,000	8	27%
Part (b)
Particulars	Projected	Original	Increase in BEP
Break Even Point (in Units)	5,500	4,762	738
[Fixed Costs/Contribution per unit]
Break Even Point (in RM)	165,000	142,857	22,143
[Fixed Costs/ Profit Volume Ratio]
Part (c)
Yes, Company’s break even point in both units and in RM has been increased from the existing level because rise in variable cost per unit by 5 RM. [refer part(b)]