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EXERCISE 1 (CVP) Matahari Sdn Bhd produces and sells minyak kelapa dara packed in a bottle.

The net weight of each bottle is 100ml. The following data is available for the month of May 2009: RM 55.00 12.50 16.00 8.50 4.00 720,000

Selling price per bottle Variable costs per bottle: Direct material Direct labour Production overhead Selling overhead Annual fixed costs

Total minyak kelapa dara produced and sold for the month of May 2009 were 20,000 bottles. Required: a) Calculate the breakeven point in bottles and value for the month of May 2009. (3 marks) b) Determine the margin of safety in bottles and value for the month of May 2009. (2 marks) c) Compute the sales value of the company if its plan to earn the profits of RM35,000 for the month of May 2009. (1 mark) d) In order to improve sales, the company is planning to change the packaging into more attractive bottle. Consequently, new bottle would incur additional costs of direct expenses RM3.50 per bottle. Advertisement cost would also be increased by RM5,000 per month to promote the new packaging. Sales are expected to increase by 30%. All other costs remain unchanged. Based on new cost structure, calculate the following: i. ii. The new breakeven point in bottles and value. The new profit or loss. (7 marks) e) The increase of petrol price will lead to increase in price of other resources. In June 2009, it is expected that the price of petrol will increase drastically. Consequently, this will increase the price of material by 30% and the price of labour will increase by 10%. Referring to original data, determine number of bottles should the company sold in order to maintain the same profit as in May 2009. (5 marks) f) Give two (2) limitations of breakeven analysis (2 marks) (Total: 20 marks)

Answer 1 a. Contribution/unit = 55 41 = RM14 BEP (units) = 60,000 = 4,286 bottles 14 BEP (RM) = 4,286 x 55 = RM235,730 b. Margin of safety (units) = 20,000 4,286 = 15,714 bottles Margin of safety (RM) = 15,714 x 55 = RM864,270 c. Sales (RM) = 60,000 + 35,000 x 55 = RM373,214.29 14 d. i. New variable cost = 41 + 3.50 = RM44.50 New contribution/unit = 55 44.50 = RM10.50 New fixed cost = 60,000 + 5,000 = RM65,000 BEP (units) = 65,000 = 6,190 bottles 10.5 BEP (RM) = 6,190 x 55 = RM340,450 ii. New sales = 20,000 x 130% = 26,000 Profit = 26,000(55) 26,000(44.5) 65,000 =RM208,000 e. New material cost = 12.5 x 130% = 16.25 New labour cost = 16 x 110% = 17.6 New contribution/unit = 55 -46.35 = RM8.65 Current profit = 20,000(55) 20,000(41) 60,000 = RM220,000 Sales(units) = 60,000 + 220,000 = 32,370 bottles 8.65

f.

i) the segregation of total costs into its fixed and variable components can be difficult ii) other factors apart from volume such as efficiency, capacity, inflation may affect costs.

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