Unit 1: Cost-Volume-Profit Analysis Economics Worksheet With Answers - Cma311s Notes, 2010 Page 5
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271.3.2 to attract sufficient demand to utilize full capacity would require a 15% reduction in the current
selling price and a N$5 000 special advertising campaign.
You are required to present a statement showing the effect of the two alternatives compared with the
original budget and to advise management which of the three possible plans should be adopted, i.e.
the original budget plan or 10.4.1 above or 10.4.2 above.
1.4
An independent market research study shows that by spending N$15 000 on a special advertising
campaign, the company could operate at full capacity and maintain the selling price at N$32 per unit.
You are required to:
10.4.1 advise management whether this proposal should be adopted; and
10.4.2 state any reservations you might have.
Solution to Activity 1
1.1
Variable costs = N$54 000 + N$72 000 + N$18 000 + N$27 000
= N$171 000
Variable cost per unit = N$171 000 ÷ 9 000 units
= N$19 per unit
Fixed costs = N$42 000 + N$36 000
= N$78 000
Break-even point (in units) = Fixed cost ÷ Contribution per unit
= N$78 000 ÷ (N$32 – N$19)
= N$78 000 ÷ N$13
= 6 000 units
Break-even point (in sales value) = B/E point in units x Selling price per unit
= 6 000 x N$32
= N$192 000
1.2
Profit-volume graph
75% Capacity = Sales of N$288 000 (9 000 units) → This was given in the question
N$288 000 (9 000 units)
100
Therefore, 100% Capacity =
1
X 75
= N$384 000 (12 000 units)
X-axis: Volume (Sales)
0
N$192 000
N$384 000
Y-axis: Net income
N$78 000 (Fixed costs)
0 (B/E point)
N$ 78 000
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