QB1501 – Introduction to Accounting Management Accounting – Tutorial Question Week 8

Q1. The amount by which an item contributes towards covering fixed cost and providing for profit is known as:

A. Operating profit B. Gross profit C. Net profit D. Contribution

Q2. Consider the following information:

? Sales revenue: $12 per unit

? Variable manufacturing expenses: $3 per unit

? Variable marketing and admin. expenses: $2 per unit

? Fixed manufacturing expenses: $1,500

? Fixed marketing and admin. expenses: $600

Based on the above information, the contribution margin is:

A. $15 B. $7 C. $10 D. $9

Based on the above information, the breakeven point is:

A. 175 units B. 300 units C. 700 units D. 233 units

Q3 Which of the following is correct about breakeven point of a company?

A. Revenue > variable costs + fixed costs B. Revenue = variable costs + fixed costs C. Revenue < variable costs + fixed costs D. None of the above Q4 Cost-Volume-Profit (or Breakeven) Analysis Gibson Ltd manufactures wooden guitar cases and has the following forecast costs: Cost per case £ Wood 40 Labour 50 Other materials 20 Fixed costs per month Tools rental 2,000 Workshop rent 3,000 Salaries 5,000 Usually monthly sales are 300 units. Required: (a) What is contribution? Definition and calculation. (b) Calculate the break-even point in units if the selling price is £150 per case? (c) Calculate the Contribution-to-sales ratio and use this ratio to calculate the break-even point in sales revenue (d) What is “Margin-of safety”? (e) If the selling price is increased to £160 per case, how many need to be sold to make a £10,000 profit per month? Q5 – Further breakeven analysis: Fixed Expenses Variable Expenses Rent £24,000 Cost of Sales 58% of sales Salaries £40,000 Material Supplies 7% of sales Depreciation £13,000 Sales Commission 5% of sales (a) What is the contribution-to-sales ratio? (b) What is the break-even point in pounds? (c) If a profit of £35,000 is required what is the new sales revenue to achieve this?