- 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.
Question
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)
Find Related Questions by Tags, levels, etc.
- Tags: Break-even Analysis, Margin of Safety, Sales Target
- Level: Level 1
- Topic: Cost-Volume-Profit (CVP) Analysis
- Series: NOV 2020