Question

Question 3

Barbie Sdn Bhd (BSB) manufactures and sells a single product which is a barbie doll. Following information are provided below:

RM

Manufacturing costs:

Direct materials cost per unit 55

Direct labor cost per unit 45

Variable overhead cost per unit 36

Fixed overhead cost in total 51,000

Selling expenses:

Variable selling expenses per unit 14

Fixed selling expenses in total 18,000

The selling price for each unit of barbie doll is RM220.00.

Required:

a) Differentiate between variable cost and fixed cost. Calculate the total variable cost per unit and total fixed costs for the year.

b) Calculate the contribution margin per unit and contribution ratio.

c) Calculate the break-even in unit and in Ringgit Malaysia (RM).

d) Assume that BSB managed to sold 3,650 units, calculate the profit of the company for the current year.

e) What is the total sales that must be generated for the company to earn a profit of RM230,000?

f) Compute the margin of safety in unit and in RM.

g) Compute a new break-even point (unit and RM) if BSB decided to increase the selling price by 20% and an increase in additional advertising cost of RM45,000. Explain what is the changes of your new break-even point (unit and RM) with previous break-even point (unit and RM).

Answer 1

(a) Difference between variable cost and fixed cost

Varible Cost:- Varible cost vary based on the units of output produced. Varible cost per unit always constant.varible cost include direct labour cost, material cost etc.

Fixed Cost:- Fixed cost remain the same regardless of production output. Fixed cost in total always constant. Fixed Cost include insurance,Rent etc.

  Cost per unit

Manufacturing costs:

Direct materials cost per unit RM 55

Direct labor cost per unit RM 45

Variable overhead cost per unit RM 36

Selling expenses:

Variable selling expenses per unit RM 14

Total Varible Cost per unit RM 150

Manufacturing costs:

Fixed overhead cost in   RM 51,000

Selling expenses:

Fixed selling expenses in   RM 18,000

Total Fixed Costs RM 69,000

(b) Contribution Margin Per unit= Selling Price per unit- Varible cost per unit

= RM 220- RM 150 = RM 70

Contribution Margin Ratio= Contribution Margin Per Unit/ Selling Price per unit

= RM 70/RM 220 = 0.31818 = 31.82 %

(c) Brak- even point in Unit= Fixed Cost/ Contribution Margin Per unit= RM 69,000/RM 70= 986 units

Break-even point in RM = Fixed Cost/ Contribution Margin Ratio= RM 69,000/31.82 = RM 216,981

(d)

Total Sales (3,650*RM 220)	RM 803,000
Direct Material (3,650*RM 55)	RM 200,750
Direct Labour (3,650*RM 45)	RM 164,250
Varible Overhead (3,650*RM 36)	RM 131,400
Varible Selling Expenses (3,650*RM 14)	RM 51,100
Contribution Margin	RM 255,500
Fixed Overhead	RM 51,000
Fixed Selling Expenses	RM 18,000
Profit	$186,500

(e) the total sales that must be generated for the company to earn a profit of RM230,000

Total Sales = (Fixed Cost+Desired Profit)/ Contribution Margin Ratio

= (RM 69,000+RM 230,000)/31.82%= RM 299,000/31.82%

= RM 939,661

(f) Margin of Safety in units= Total Sales unit- Break even sales= 3,650- 986 = 2,664 units

Margin of safety in RM = Margin of safety units* selling Price= 2,664*RM 220 = RM 586,080

(g) Revised Selling Price= RM 220+RM 220*20%= RM 220+ RM 44 = RM 264

New Contribution Margin Per Unit= Selling Price- Varible cost per unit= RM 264- RM 150 = RM 114

New Fixed Cost = RM 51,000 +RM 18,000+RM 45,000 =RM 114,000

New Break-even point in units= Fixed Cost/ Contribution Margin Per unit= RM 114,000/RM 114= 1,000 units

New Break even point in RM = Break-even in Unit*selling Price= 1,000*RM 220= RM 220,000

Change in Break-even point in Unit= (1000-986)/986= 14/986= 1.42%

Break-even units increase by 1.42%

Change in break-even point in RM= (RM 220,000-RM 216,981)/RM 216,981= RM 3,019/RM 216,981= 1.39%

Break-even in RM increased by 1.39%.