Question

Fundamentals of cost and management accounting

Classwork on breakeven analysis

Question 1

GPZ sells cupcakes for $2. Material per unit costs $0.10. Variable labour cost is $0.25. Variable other manufacturing costs is $0.35. Monthly fixed costs are $12,000.

Required

1. Calculate the breakeven point.
2. Calculate the volume required to earn $30,000.
3. How does your analysis change if you learn that the cupcakes are sold through agents who charge a commission of $1 per each 100 cupcakes sold?

Question 2

A road construction company generates on average $500,000 of revenue for each kilometre of road built. The variable costs per kilometre built are made up of fuel ($10,000), direct labour ($40,000), vehicle maintenance ($20,000), other variable vehicle costs ($55,000), and materials ($225,000). The monthly fixed costs of the company are $1.5 million.

Required

1) Calculate the breakeven point in kilometres of road built per month.

2) Calculate the breakeven point in dollar revenue per month.

3) Calculate the contribution margin percentage.

Question 3

APP operates a beauty salon. Average revenue per customer is $200. Monthly fixed costs are $45,000. Variable costs in last month were in total $78,000. During that month APP had 1,000 customers.

Required

1. Calculate the breakeven point.
2. Calculate the contribution margin ratio.
3. What was the profit last month?

Question 4

Aisha operates a children’s nursery. Her monthly fixed costs are AED60,000. Her revenue per month per child is AED1,600. Variable costs per month are AED200 per child.

Required

1. Calculate the breakeven point in units
2. How many children need to attend the nursery if she wants to make a monthly profit of AED20,000?
3. How many children need to attend the nursery if she wants to make a monthly profit of AED20,000 and she is liable to 50% income tax?
4. How many children need to attend the nursery if she wants to make a monthly profit of AED20,000 and she is liable to 30% income tax?

Answer 1

1. a.	Variable cost p.u	0.1 + 0.25 + 0.35		0.7
	Sales Price p.u.			2
	Contribution p.u.			1.3
	Breakeven Point	=	Fixed cost / Contribution p.u
	(in units)	=	12000/1.3
		=	9231
1. b.	Required volume	=	(12000+30000)/1.3
	(in units)	=	32308
1.c.	New contribution p.u.	=	1.3 - .01
		=	1.29
	Breakeven Point	=	Fixed cost / Contribution p.u
	(in units)	=	12000/1.29
		=	9302

2. a.	Variable cost per km	=	10000+225000+40000+20000+55000				350000
	Revenue per km	=					500000
	Contribution per km	=					150000
	Breakeven Point	=	Fixed cost / Contribution p.u
	(in km)	=	1500000/150000
		=	10
2. b.	Break even Sales	=	10*500000
		=	$ 5 million
2. c.	Contribution margin %	=	150000/500000
	(in units)	=	30%

3. a.	Variable cost p.u	78000/1000		78
	Sales Price p.u.			200
	Contribution p.u.			122
	Breakeven Point	=	Fixed cost / Contribution p.u
	(in units)	=	45000/122
		=	369
3. b.	Contribution margin %	=	122/200
	(in units)	=	61%
3. c.	Profits (in $)	=	122 x 1000 - 45000
		=	77000

4. a.	Variable cost p.u		200
	Sales Price p.u.		1600
	Contribution p.u.		1400
	Breakeven Point	=	Fixed cost / Contribution p.u
	(in units)	=	60000/1400
		=	43
4. b.	Required children	=	(20000+60000)/1400
		=	57
4. c.	Required children	=	(20000*0.5+60000)/1400
		=	50
4. d.	Required children	=	(20000*0.7+60000)/1400
		=	53