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In: Accounting

LOVE Enterprise is a seller of cupcakes. The variable cost is RM4 per unit and the...

LOVE Enterprise is a seller of cupcakes. The variable cost is RM4 per unit and the fixed cost is RM800 for a month. A cupcake is sold at RM12.

Required:

(a) Briefly explain the importance of cost-volume-profit analysis for a business. (7    marks)

(b) Calculate the contribution margin for a unit of cupcake. (3    marks)

(c) Determine the number of cupcakes need to be sold to achieve break-even point. (3    marks)

Solutions

Expert Solution

Part (a)

Importance of CVP analysis for a business
Cost volume profit analysis is the analysis of three variable such as cost , volume and profit.CVP analysis explore the relationship exisiting amongst cost , revenue activity level and the resulting profit .CVP aims at measuring variations of cost with volume .That way CVP analysis plays an important role in profit planning of business
Profit of business is depending on large number of factos.But the most important factor are the cost of manufacture , volume of sales and selling price of the product
The cost volume profit relationship is an important tool used for profit planning of a business
CVP analysis is a technique for studying the relationship between cost volume and profit

Part (b)

Calculation of contribution margin
Contribution =Selling price less variable cost
Selling price RM 12
Variable cost RM 4
Therefore contribution is (RM 12- RM 4) =RM 8
Contribution margin= contribution /selling price
Which is = RM 8/ RM 12
MARGIN IS 66.67%

Part (c)

Number of cupcake to be sold to achieve break even point
Break even units =Fixed cost /Contributin per unit
Fixed cost RM 800
Contribution per unit RM 8
Break even units ( 800 /8) 100 UNITS

ekkarill92 answered 2 years ago
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