KINDLY REFER TO CHAPTER 7 OF THE COMPREHENSIVE LECTURES TO READ UP THE TOPIC BEFORE YOU ATTEMPT THE QUESTIONS BELOW FOR PROPER UNDERSTANDING AS THE TOPIC HAS BEEN DISCUSSED IN THE SAID VIDEO LECTURES. THANKS ICAN MI (COSTING) WEEK 7 TOPICS: BREAK-EVEN ANALYSIS/COST-VOLUME-PROFIT ANALYSIS REVIEW QUESTIONS STARRY GOLD ACADEMY +2348023428420, +2347038174484, info@starrygoldacademy.com, www.starrygoldacademy.com Page 1
Question 1 a. What do you understand by Break-even analysis? b. It is commonly said that break-even analysis is an application of marginal costing. What do you understand by Marginal costing? c. List the major conditions that must be met before marginal costing method is applied in break-even analysis. Question 2 a. Deduce the relevant formulae for C-V-P analysis b. What do you understand by Break-even point? c. Write short notes on the following: i. Profit-volume graph ii. Contribution graph iii. Margin of safety iv. Angle of incidence v. Limitations of break-even charts STARRY GOLD ACADEMY +2348023428420, +2347038174484, info@starrygoldacademy.com, www.starrygoldacademy.com Page 2
Question 3 It is estimated that the output of 1000 units would cost N10, 000 and that 1,100 units would cost N10,700. Required: a. What would be the estimated cost of 990 units? b. What is the amount of fixed cost? c. Taking the unit selling price as N11, calculate the Break-even point. d. If it is desired to make a profit of N1, 000, how many units should be sold? e. Assuming that selling price is reduced to N10, what effect would it have on the breakeven point? f. What is the profit if the output level is 1500 units? STARRY GOLD ACADEMY +2348023428420, +2347038174484, info@starrygoldacademy.com, www.starrygoldacademy.com Page 3
Question 4 A firm makes three products A, B and C the sales and contributions of which are given below: Product Sales Contributions N N N A 300,000 60,000 B 80,000 40,000 C 50,000 50,000 You are required to find the breakeven point in sales, given that fixed costs is N100,000. STARRY GOLD ACADEMY +2348023428420, +2347038174484, info@starrygoldacademy.com, www.starrygoldacademy.com Page 4
Question 5 A company has total fixed cost of N400,000. It sells its products at N100 each and the variable cost per unit of producing and selling the products is N60. Required: a. Determine the profit or loss when the following units are sold: i. 9000 units ii. 12,000 units b. Calculate the total number of units that must be sold in order to: i. Earn a loss of N100,000 ii. Break even iii. Earn a profit of N100,000 iv. Earn a profit after tax of N100,000 assuming a tax rate of 20%. STARRY GOLD ACADEMY +2348023428420, +2347038174484, info@starrygoldacademy.com, www.starrygoldacademy.com Page 5
Question 6 Dr. Abolade & Sons Limited reports the following: N Sales (2,500 units at N40 each) 100,000 Less Expenses: N Cost of goods sold (all variable) 45,000 Sales commission 5,000 Rent 5,000 Fixed administrative expenses 18,000 Miscellaneous fixed expenses 2,000 Total expenses 75,000 Net profit 25,000 STARRY GOLD ACADEMY +2348023428420, +2347038174484, info@starrygoldacademy.com, www.starrygoldacademy.com Page 6
Required: a. How many units must be sold before the firm can break-even? b. What will be the net profit if sales increased by 30% (assume no increase in selling price) c. If selling price is reduced by 5%, how many units must be sold in order to maintain the net profit of N25,000? STARRY GOLD ACADEMY +2348023428420, +2347038174484, info@starrygoldacademy.com, www.starrygoldacademy.com Page 7
Question 7 Mbari Mbayo Nigeria Plc deals with one product called Ebu. The current sales of the product average 2,000 units at N200 each. The costs are: Direct materials 114,000 Direct labour 36,000 Variable overhead 40,000 Fixed overhead 99,750 N Required: a. How many units must the company sell in order to break-even? STARRY GOLD ACADEMY +2348023428420, +2347038174484, info@starrygoldacademy.com, www.starrygoldacademy.com Page 8
b. Calculate the additional sales in units required to maintain the current profit level if the selling price is reduced by 5 percent. c. Calculate the net profit if the sales volume in units is increased by 10% d. If the fixed cost increases by N20,000, how many units should be sold in order to earn profit of N60,000? e. It has been suggested that an advertisement of N40,000 on radio can increase the sale of the product by 300 units. Should the advertisement be embarked upon? STARRY GOLD ACADEMY +2348023428420, +2347038174484, info@starrygoldacademy.com, www.starrygoldacademy.com Page 9