Question Tag: Margin of Safety

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

  • 30 Marks

PM – May 2017 – L2 – SA – Q1 – Working Capital Management

Calculate KPIs for Kardex’s products, perform a PEST analysis, and comment on KPI effectiveness in external conditions.

  1. Kardex Industries Nigeria Limited is a subsidiary of a large manufacturing company based in China (Kardex International). The company manufactures washing machines, table gas cookers, and refrigerators which are being sold by the subsidiary in Nigeria. Demand for the company’s product is growing, especially among the growing middle-class population, until recently when the company started experiencing some hiccups due to the economic recession and stiff competition.
    • The company currently sells two types of washing machines in Nigeria:
      • Wash Up: A basic product comparable to local competitors.
      • Perfect Wash: A premium product similar to Kardex’s offerings in developed countries.
    • The competitive environment in Nigeria is evolving quickly. Apart from Kardex, two other companies offer similar machines in the market. One competitor produces machines similar to “Wash Up” locally with tax incentives, while the other is planning to set up a plant for specialized washing machines akin to Kardex’s “Perfect Wash.”
    • Kardex International’s mission is to be the “industry leader.” The Kardex Board has identified critical success factors (CSFs) for the Nigerian subsidiary:
      • Market leadership.
      • Profit maximization and shareholder wealth within acceptable risk.
      • Brand image maintenance as a top-of-the-range product.
    • The Board suggests using the following KPIs for each product:
      • Total profit, average sales price per unit, contribution per unit, market share, margin of safety, return on capital employed (ROCE), and total quality costs.

Appendix 1
Financial Year Data for Nigerian Subsidiary:

Requirements:

a. Calculate the Key Performance Indicators (KPIs) for Kardex, including:

  • Total Profit
  • Average Sales Price per Unit
  • Contribution per Unit
  • Market Share
  • Margin of Safety
  • Return on Capital Employed (ROCE)
  • Quality Costs (20 Marks)

b. Use a PEST Analysis to identify external environmental issues affecting Kardex and discuss the effectiveness of the KPIs in addressing these issues.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "PM – May 2017 – L2 – SA – Q1 – Working Capital Management"

  • 1 Marks

MI – Nov 2023 – L1 – SA – Q5 – Cost-Volume-Profit Analysis

Calculating the break-even point given sales figure and margin of safety.

What is the break-even point where sales figure is ₦15,000,000 and margin of safety is 30%?
A. ₦2,000,000
B. ₦3,000,000
C. ₦6,500,000
D. ₦10,500,000
E. ₦12,000,000

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – Nov 2023 – L1 – SA – Q5 – Cost-Volume-Profit Analysis"

  • 1 Marks

MI – May 2017 – L1 – SA – Q11 – Cost-Volume-Profit (CVP) Analysis

Identify the definition of Margin of Safety in value.

The margin of safety in value is expected to be:
A. Sales less profit at break-even point
B. Sales less cost at break-even point
C. Cost less cost at break-even point
D. Sales less sales at break-even point
E. Profit less profit at break-even point

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – May 2017 – L1 – SA – Q11 – Cost-Volume-Profit (CVP) Analysis"

  • 15 Marks

MA – Nov 2017 – L2 – Q5 – Standard Costing and Variance Analysis

Calculate standard selling price, variances, break-even point, and margin of safety for a company using standard marginal costing.

Zealow Ltd has just introduced a new standard marginal costing system to assist in the planning and control of the production activities for the single product which the company manufactures, “The Stand.” The system became operational on 1 March 2017.

The Management Accountant has consulted with the Senior Engineer and they have agreed on the following standard specifications to manufacture one unit of the product known as “The Stand”:

  • Direct materials: 4kg @ GH¢1.75 per kg
  • Direct labour: 2 hours @ GH¢10 per hour
  • Variable overhead: 2 hours @ GH¢8.25 per hour

The Marketing Director has advised that in Zealow Ltd’s industry, the budgeted selling price is normally calculated to achieve a mark-up of 30% on cost.

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

The actual results for the month of March 2017 are as follows:

  • Sales: 22,000 units yielding a total revenue of GH¢1,276,000
  • Production: 23,000 units
  • Direct Materials: 90,000 kgs at a cost of GH¢162,000
  • Direct labour: 48,000 hours at a cost of GH¢576,000
  • Variable overhead: GH¢350,000

Required:

a) Calculate the standard selling price of one unit of “The Stand” and prepare a summary budgeted profit statement for Zealow Ltd for the month of March 2017.
b) Calculate the relevant variances for March 2017 under the headings of sales, materials, labour, and overheads.
c) Zealow Ltd uses a standard marginal costing system and therefore fixed costs have been ignored in the calculations shown above. Assuming that the fixed costs for the company are estimated to be GH¢1,879,200 per annum, calculate the monthly sales in both units and value that will be required to break-even and estimate the margin of safety, based on the current budget levels.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2017 – L2 – Q5 – Standard Costing and Variance Analysis"

  • 20 Marks

MA – Nov 2020 – L2 – Q5 – High/Low Analysis, Cost-Volume-Profit (CVP) Analysis

Determine maintenance costs using the high-low method, and calculate break-even point, required sales for target profit, and margin of safety for Quickspray Ltd.

Quickspray Ltd offers professional car spraying services at Suame Magazine. The company is planning its activities for the month of June 2018 for its saloon car spraying section. The company charges a service fee of GH¢1,000 and incurs fixed cost (excluding fixed maintenance cost) and variable cost per unit (excluding variable maintenance cost) of GH¢35,000 and GH¢644.39 respectively for spraying a saloon car.

The following data also relates to Quickspray Ltd on the maintenance hours of its key machine, revenue, and profit for the six months ended April 2018:

Month Maintenance Hours Revenue (GH¢) Profit (GH¢)
November 2017 1,200 19,000 700
December 2017 1,425 24,000 1,425
January 2018 1,410 20,100 650
February 2018 1,400 20,000 1,000
March 2018 1,175 18,000 (125)
April 2018 1,275 19,000 175

Total fixed cost increases by GH¢1,120 when maintenance hours go beyond 1,400.

Required:

a) Determine the total maintenance cost of production, using the high-low method if:

i) Maintenance hours for May are budgeted to be 1,520.
ii) Maintenance hours for June are budgeted to be 1,075.

b) Calculate for the month of May the:

i) Break-even point in units and value.
ii) Sales level required to make an after-tax profit of GH¢21,150, assuming Quickspray Ltd is in the 25% tax bracket.
iii) Margin of safety if the target after-tax profit of GH¢21,150 is achieved.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2020 – L2 – Q5 – High/Low Analysis, Cost-Volume-Profit (CVP) Analysis"

  • 15 Marks

MA – May 2019 – L2 – Q4 – Cost-volume-profit (CVP) analysis

Evaluate different options to improve profitability and perform CVP analysis including break-even and margin of safety calculations.

Boasiako Ltd manufactures high-quality coffee biscuits that are sold to hotels and restaurants in Koforidua. Two months ago, it had prepared a budget for the forthcoming financial year.

Details of the budget are presented below:
Sales GH¢6,000,000
Less:
Direct materials GH¢2,080,000
Direct labour GH¢1,160,000
Variable overheads GH¢840,000
Fixed overheads GH¢972,600
Total costs GH¢5,052,600
Profit GH¢947,400

The budget above has been prepared on the assumption that sales will be 800,000 packets of biscuits. However, due to changing economic conditions, the sales forecast for the year is now 720,000 packets of biscuits. It is expected that the selling price per unit, direct costs per unit, and variable overhead cost per unit will not change from those budgeted. It is also expected that fixed overheads will be the same as those budgeted.

Management is now considering a number of options to improve profitability for the forthcoming financial year:

Option 1:
Decrease the selling price by 20%. It is anticipated that this would increase sales volume by 25% on the forecast sales for the current year.

Option 2:
Decrease all variable costs by 10% and decrease fixed costs by 10%. This is not expected to have any impact on the sales level.

Option 3:
Decrease the selling price by 10% and decrease fixed costs by 5%. This is expected to increase sales volume by 25% on the forecast sales for the current year.

Required:
a) Calculate the expected profit for the current year (forecast sales). (2 marks)
b) Based on the forecast activity for the year, calculate:
i) The breakeven point in packets of biscuits.
ii) The margin of safety in percentage terms.
iii) The sales revenue required to earn a profit of GH¢1,440,000. (6 marks)
c) Evaluate the profitability of the three options and recommend the option that Boasiako Ltd should adopt. (7 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – May 2019 – L2 – Q4 – Cost-volume-profit (CVP) analysis"

  • 20 Marks

IMAC – NOV 2020 – L1 – Q1 – Cost-Volume-Profit (CVP) Analysis

Explain break-even point and margin of safety; calculate CVP metrics for Kack Ltd.

a) Explain the terms break-even point and margin of safety as used in cost-volume-profit (CVP) analysis in short term decision making. (4 marks)

b) Kack Ltd is a company which uses cost-volume-profit analysis for planning and control decisions. You have been given the following information for the just ended operational period:

Description Amount (GH¢)
Total revenue 3,600,000
Total cost 3,510,000
Variable cost 2,700,000

Required:
i) Variable cost/sales ratio. (1 mark)
ii) Contribution/sales (C/S) ratio. (2 marks)
iii) Break-even sales (in value). (2 marks)
iv) Margin of safety (in value). (1 mark)
v) Margin of safety (in percentage). (1 mark)
vi) The sales value which would yield a profit of GH¢270,000 assuming the C/S ratio and fixed costs remain unchanged. (3 marks)
vii) The sales value which would yield a profit of 15% of that sales value assuming the C/S ratio and the fixed costs remain unchanged. (3 marks)
viii) The break-even sales value if total fixed costs are reduced by GH¢180,000 while the selling price is reduced by 10%, assuming no changes in variable costs ratio. (3 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "IMAC – NOV 2020 – L1 – Q1 – Cost-Volume-Profit (CVP) Analysis"

  • 30 Marks

PM – May 2017 – L2 – SA – Q1 – Working Capital Management

Calculate KPIs for Kardex’s products, perform a PEST analysis, and comment on KPI effectiveness in external conditions.

  1. Kardex Industries Nigeria Limited is a subsidiary of a large manufacturing company based in China (Kardex International). The company manufactures washing machines, table gas cookers, and refrigerators which are being sold by the subsidiary in Nigeria. Demand for the company’s product is growing, especially among the growing middle-class population, until recently when the company started experiencing some hiccups due to the economic recession and stiff competition.
    • The company currently sells two types of washing machines in Nigeria:
      • Wash Up: A basic product comparable to local competitors.
      • Perfect Wash: A premium product similar to Kardex’s offerings in developed countries.
    • The competitive environment in Nigeria is evolving quickly. Apart from Kardex, two other companies offer similar machines in the market. One competitor produces machines similar to “Wash Up” locally with tax incentives, while the other is planning to set up a plant for specialized washing machines akin to Kardex’s “Perfect Wash.”
    • Kardex International’s mission is to be the “industry leader.” The Kardex Board has identified critical success factors (CSFs) for the Nigerian subsidiary:
      • Market leadership.
      • Profit maximization and shareholder wealth within acceptable risk.
      • Brand image maintenance as a top-of-the-range product.
    • The Board suggests using the following KPIs for each product:
      • Total profit, average sales price per unit, contribution per unit, market share, margin of safety, return on capital employed (ROCE), and total quality costs.

Appendix 1
Financial Year Data for Nigerian Subsidiary:

Requirements:

a. Calculate the Key Performance Indicators (KPIs) for Kardex, including:

  • Total Profit
  • Average Sales Price per Unit
  • Contribution per Unit
  • Market Share
  • Margin of Safety
  • Return on Capital Employed (ROCE)
  • Quality Costs (20 Marks)

b. Use a PEST Analysis to identify external environmental issues affecting Kardex and discuss the effectiveness of the KPIs in addressing these issues.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "PM – May 2017 – L2 – SA – Q1 – Working Capital Management"

  • 1 Marks

MI – Nov 2023 – L1 – SA – Q5 – Cost-Volume-Profit Analysis

Calculating the break-even point given sales figure and margin of safety.

What is the break-even point where sales figure is ₦15,000,000 and margin of safety is 30%?
A. ₦2,000,000
B. ₦3,000,000
C. ₦6,500,000
D. ₦10,500,000
E. ₦12,000,000

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – Nov 2023 – L1 – SA – Q5 – Cost-Volume-Profit Analysis"

  • 1 Marks

MI – May 2017 – L1 – SA – Q11 – Cost-Volume-Profit (CVP) Analysis

Identify the definition of Margin of Safety in value.

The margin of safety in value is expected to be:
A. Sales less profit at break-even point
B. Sales less cost at break-even point
C. Cost less cost at break-even point
D. Sales less sales at break-even point
E. Profit less profit at break-even point

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – May 2017 – L1 – SA – Q11 – Cost-Volume-Profit (CVP) Analysis"

  • 15 Marks

MA – Nov 2017 – L2 – Q5 – Standard Costing and Variance Analysis

Calculate standard selling price, variances, break-even point, and margin of safety for a company using standard marginal costing.

Zealow Ltd has just introduced a new standard marginal costing system to assist in the planning and control of the production activities for the single product which the company manufactures, “The Stand.” The system became operational on 1 March 2017.

The Management Accountant has consulted with the Senior Engineer and they have agreed on the following standard specifications to manufacture one unit of the product known as “The Stand”:

  • Direct materials: 4kg @ GH¢1.75 per kg
  • Direct labour: 2 hours @ GH¢10 per hour
  • Variable overhead: 2 hours @ GH¢8.25 per hour

The Marketing Director has advised that in Zealow Ltd’s industry, the budgeted selling price is normally calculated to achieve a mark-up of 30% on cost.

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

The actual results for the month of March 2017 are as follows:

  • Sales: 22,000 units yielding a total revenue of GH¢1,276,000
  • Production: 23,000 units
  • Direct Materials: 90,000 kgs at a cost of GH¢162,000
  • Direct labour: 48,000 hours at a cost of GH¢576,000
  • Variable overhead: GH¢350,000

Required:

a) Calculate the standard selling price of one unit of “The Stand” and prepare a summary budgeted profit statement for Zealow Ltd for the month of March 2017.
b) Calculate the relevant variances for March 2017 under the headings of sales, materials, labour, and overheads.
c) Zealow Ltd uses a standard marginal costing system and therefore fixed costs have been ignored in the calculations shown above. Assuming that the fixed costs for the company are estimated to be GH¢1,879,200 per annum, calculate the monthly sales in both units and value that will be required to break-even and estimate the margin of safety, based on the current budget levels.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2017 – L2 – Q5 – Standard Costing and Variance Analysis"

  • 20 Marks

MA – Nov 2020 – L2 – Q5 – High/Low Analysis, Cost-Volume-Profit (CVP) Analysis

Determine maintenance costs using the high-low method, and calculate break-even point, required sales for target profit, and margin of safety for Quickspray Ltd.

Quickspray Ltd offers professional car spraying services at Suame Magazine. The company is planning its activities for the month of June 2018 for its saloon car spraying section. The company charges a service fee of GH¢1,000 and incurs fixed cost (excluding fixed maintenance cost) and variable cost per unit (excluding variable maintenance cost) of GH¢35,000 and GH¢644.39 respectively for spraying a saloon car.

The following data also relates to Quickspray Ltd on the maintenance hours of its key machine, revenue, and profit for the six months ended April 2018:

Month Maintenance Hours Revenue (GH¢) Profit (GH¢)
November 2017 1,200 19,000 700
December 2017 1,425 24,000 1,425
January 2018 1,410 20,100 650
February 2018 1,400 20,000 1,000
March 2018 1,175 18,000 (125)
April 2018 1,275 19,000 175

Total fixed cost increases by GH¢1,120 when maintenance hours go beyond 1,400.

Required:

a) Determine the total maintenance cost of production, using the high-low method if:

i) Maintenance hours for May are budgeted to be 1,520.
ii) Maintenance hours for June are budgeted to be 1,075.

b) Calculate for the month of May the:

i) Break-even point in units and value.
ii) Sales level required to make an after-tax profit of GH¢21,150, assuming Quickspray Ltd is in the 25% tax bracket.
iii) Margin of safety if the target after-tax profit of GH¢21,150 is achieved.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2020 – L2 – Q5 – High/Low Analysis, Cost-Volume-Profit (CVP) Analysis"

  • 15 Marks

MA – May 2019 – L2 – Q4 – Cost-volume-profit (CVP) analysis

Evaluate different options to improve profitability and perform CVP analysis including break-even and margin of safety calculations.

Boasiako Ltd manufactures high-quality coffee biscuits that are sold to hotels and restaurants in Koforidua. Two months ago, it had prepared a budget for the forthcoming financial year.

Details of the budget are presented below:
Sales GH¢6,000,000
Less:
Direct materials GH¢2,080,000
Direct labour GH¢1,160,000
Variable overheads GH¢840,000
Fixed overheads GH¢972,600
Total costs GH¢5,052,600
Profit GH¢947,400

The budget above has been prepared on the assumption that sales will be 800,000 packets of biscuits. However, due to changing economic conditions, the sales forecast for the year is now 720,000 packets of biscuits. It is expected that the selling price per unit, direct costs per unit, and variable overhead cost per unit will not change from those budgeted. It is also expected that fixed overheads will be the same as those budgeted.

Management is now considering a number of options to improve profitability for the forthcoming financial year:

Option 1:
Decrease the selling price by 20%. It is anticipated that this would increase sales volume by 25% on the forecast sales for the current year.

Option 2:
Decrease all variable costs by 10% and decrease fixed costs by 10%. This is not expected to have any impact on the sales level.

Option 3:
Decrease the selling price by 10% and decrease fixed costs by 5%. This is expected to increase sales volume by 25% on the forecast sales for the current year.

Required:
a) Calculate the expected profit for the current year (forecast sales). (2 marks)
b) Based on the forecast activity for the year, calculate:
i) The breakeven point in packets of biscuits.
ii) The margin of safety in percentage terms.
iii) The sales revenue required to earn a profit of GH¢1,440,000. (6 marks)
c) Evaluate the profitability of the three options and recommend the option that Boasiako Ltd should adopt. (7 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – May 2019 – L2 – Q4 – Cost-volume-profit (CVP) analysis"

  • 20 Marks

IMAC – NOV 2020 – L1 – Q1 – Cost-Volume-Profit (CVP) Analysis

Explain break-even point and margin of safety; calculate CVP metrics for Kack Ltd.

a) Explain the terms break-even point and margin of safety as used in cost-volume-profit (CVP) analysis in short term decision making. (4 marks)

b) Kack Ltd is a company which uses cost-volume-profit analysis for planning and control decisions. You have been given the following information for the just ended operational period:

Description Amount (GH¢)
Total revenue 3,600,000
Total cost 3,510,000
Variable cost 2,700,000

Required:
i) Variable cost/sales ratio. (1 mark)
ii) Contribution/sales (C/S) ratio. (2 marks)
iii) Break-even sales (in value). (2 marks)
iv) Margin of safety (in value). (1 mark)
v) Margin of safety (in percentage). (1 mark)
vi) The sales value which would yield a profit of GH¢270,000 assuming the C/S ratio and fixed costs remain unchanged. (3 marks)
vii) The sales value which would yield a profit of 15% of that sales value assuming the C/S ratio and the fixed costs remain unchanged. (3 marks)
viii) The break-even sales value if total fixed costs are reduced by GH¢180,000 while the selling price is reduced by 10%, assuming no changes in variable costs ratio. (3 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "IMAC – NOV 2020 – L1 – Q1 – Cost-Volume-Profit (CVP) Analysis"

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Contact Info

  • +233203701923
    +233543919232
  • info@nbcinstitute.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
error: Content is protected !!
Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan