PREPARED FOR:- PROF. DATIN DR. SUZANA SULAIMAN PREPARED BY:ILI FARHANA BT ISHAK RAMSIAH BT ISMAIL SITI MAZIDAH BT HANIF WAN AINUL ASYIQIN BT WAN MOHD RAZALI 2011852284 2011853756 2011420726 2011299418 QUESTION 1 What are the assumptions implicit in Bill French’s determination of his company’s break-even point? Sales prices will remain constant . There is just one breakeven point for the firm 2. Level of fixed and variable costs has been assumed to be unchanged 4. Sales mix will remain constant 3.ANSWER :- 1. What is the break-even point? . what does next year look like: a.QUESTION 2 On the basis of French’s revised information. 000 units (500.000) • Fixed cost per year increase to $720.000+200.000+250. • Fixed cost for Product C = $450.000+$720.000.000 = $1. Assumption for next year • Product A reduce to 400.80.000 units. .000 x 12 months) and the difference charged to Product C only. • Product C increase to 950.2 (a). • Selling price for Product C increase to $4.000 ($60.170. Formula • Variable cost to sales: Total variable cost Sales revenue • Utilization of capacity: Sales volume Sales at full capacity • Break-even point operation: Fixed Cost Contribution/unit . 25 20% 0. Cost/ Unit Contrib.000 $10.563 $5.00 $4.000 $960.545.6875 47.75 0.948 $12.5% 0.690.5127 87. cost to sales Unit contrib.50 $3.75 5.000 $3.160.000 $540.385 3.3125 0.000 $1.000 400.50 3. to sales Utiliz.545 .000 297.000 $9.965.143 354./ Unit Total Var.000 $3.035.000 $6.The break-even point for next year Aggregate Sales at full capacity (units) Sales Vol.00 $3.600.000 A B C BEP (units) 1.000 400.170.750.000.560.5833 20% 0. (units) Unit sales price Sales revenue Var.000.000 $7.80 $4.925.000 $4.560.000.000 $1.5% 2.000 $2.000 $1.25 1.688 384.000 $40.000 950.500.425.4167 0. Of capacity 0.4873 0.50 2. Cost Fixed Cost Profit Ratios: Var.000 $3.000 $1.30 1.000 1. ignoring union demands? .QUESTION 2 b. What level of operations must be achieved to pay the extra dividend. 000 because the profit will be divided evenly between gov.000 • Profit retained = $150.000 + $600.000 = $600.000 (divided evenly between government & company $450.000 + 150.000 + 50% extra = 300.000 = $450. To pay extra dividend Last year: • Profit =$900.000) • Dividend paid = $300.000+150.000 This year: • Dividend to be paid = $300.000:$450. .000 • Profit (after tax) needed by company = 450.2(b). and co.000 • Profit (before tax) targeted = $600. 000 $150.000 $3..372.563 1. therefore it is considered as fixed cost.000 $1.200.000 Profit before tax (after taking into consideration 50% of profit need to be paid to government) = 600.000 $4. .000.000 and retained profit of $150.000 in order to meet the dividend of $450.200.000 + 600.439 The profit before tax must be $1.000 Contribution/ unit BEP/ level of operation must be achieved 3.Level of operation must be achieved Dividend (plus bonus div) to be paid Profit to be retained Profit after tax (needed) $450.890.000 $600.690.000 Fixed Cost (+) the profit before tax targeted Total fixed cost $1200. What level of operations must be achieved to meet the union demands.QUESTION 2 c. ignoring bonus dividends? . 2(c).3.750.500 • Variable cost per unit = $6.517.000.500/1.517.000 +10% = $6.000 units = $3.72 • Contribution per unit = Selling price .23 • Dividend maintains as $300.72 = 3. • Profit to be retained is still $150. To meet the union demands • Increase 10% in variable cost • Total variable cost = $5.95 .000. .variable cost per unit = 6.925. Level of operation must be achieved Dividend to be paid Profit to be retained Profit after tax (needed) Profit before tax (after taking into consideration 50% of profit need to be paid to government) = 450.72 3.000 6.000 $450.23 $3.000 $150.000 + 450.000 Total fixed cost BEP/ level of operation must be achieved $4.000 1.690.053 .000 $900.421.000 Unit sales price Variable Cost/ Unit Contribution/ Unit Fixed Cost (+) the profit before tax targeted $300.590.000 $900.95 3. What level of operations must be achieved to meet both dividends and expected union requirements? .QUESTION 2 d. 3.72 • Contribution per unit = Selling price .517.variable cost per unit = 6.23 • Dividend: $450.500 • Variable cost per unit = $6.000 units = $3.000 +10% = $6.72 = 3.750.000. .500/1.925.95 .2(d).000. To meet the union demands and expectation dividend • Increase 10% in variable cost • Total variable cost = $5. • Profit to be retained is still $150.517. 000 $150.932 .690.000 $4.23 Fixed Cost (+) the profit before tax targeted Total fixed cost BEP/ level of operation must be achieved $3.000 Profit before tax (after taking into consideration 50% of profit need to be paid to government) = 600.000+600.000 1.000 Unit sales price Variable Cost/ Unit Contribution/ Unit $1.Level of operation must be achieved Dividend to be paid Profit to be retained Profit after tax (needed) $300.000 $1.72 3.513.200.200.000 6.000 $450.95 3.890. QUESTION 3 Can the break-even analysis help the company to decide whether to alter the existing product emphasis? What can the company afford to invest for additional “C” capacity? . Breakeven analysis: • help the company decide to alter the existing product because it will allow the company to identify which product generates the highest profit. . 560.FIXED COST ( $450.000+ 1.965.000 $4.50 = 3.80 $4.000 ) UNIT SALES PRICE SALES REVENUE VARIABLE COST PER UNIT + PRODUCT C $1.425.000 $3.000+1.000 $1.60) CONTRIBUTION (4.50 TOTAL VARIABLE COST (950.170.30x 950.000) $1.000 x 1.000 units TOTAL NO OF UNITS PRODUCED INVESTMENT THE COMPANY CAN AFFORD (4.000 $1.30) $3.000+$720.425.560.135.170.000 950.80 – 1.000 . 100. Why is the sum of these three volumes not equal to the 1.000 units aggregate break-even volume? .QUESTION 4 Calculate each of the three products break-even points using the data in Exhibit 3. 25 =450.90 =297.143 unit =500.00 $3.560.000 $2.560.000 unit @ $3.90 BREAK-EVEN POINT =960.287 @$1.000 $9.200.25 $0.40 $1.000/5.000 =1.840.PRODUCT A PRODUCT B PRODUCT C FIXED COST UNIT SALES PRICE VARIABLE COST PER UNIT CONTRIBUTION UNIT 960.75 450.000 unit @$2.000 .50 $2.50 1.50 =384.00 $7.000/0.000 $10.50 $5.674.000/2. 181.• Sum of the three products A+B+C = 1.143 units • Not equal to 1.000 because: FIXED COST .100. if the product are calculated individually where it ignores the effect of the product mix there is a different in the total amount of BEP. the higher contribution margin in a product will help to cover the fixed costs of the less efficient product because they share the same fixed costs.• This is because. • This is where the production of each product is different in values and units that contribute to the fixed costs. • In this product mix. . QUESTION 5 Is this type of analysis of any value? For what can it be used? . CVP analysis: •Is a simplified technique for decision making process •Gives the insight to the company on the needs to make the right choices and avoid costly mistakes •provides management with a comprehensive overview of the effects on revenue and costs of all kinds of short term financial changes •By understanding the break-even point concept it enables the company to take a number of strategic decisions . profit. •To determine the most profitable product or service •To identify what sales volumes that need to be achieved and sales goals that need to meet by the marketing or sales department. •To assists in establishing prices of products or services • To assists in analysing how the mix of products affects profits •To set sales target and/or price to generate profits. •To find out which products are performing well and which are leading to losses •To eliminate non value added .It can be used: •To help understand and formulate the relationship between cost (fixed and variable). output. . •As an important part for the company of short term decision making in a business.Conclusion •Cost Volume Profit (CVP) Analysis and Break Even Analysis is the critical factor in profit planning.