1. [Understanding CPV analysis). Finch Fletcher Limited manufactures trumpets. Each trumpet sells for 350, and has variable costs of manufacture of 120. The company can produce no more than 1,200 in a year. In the year ending 31 March 2012 the company's directors expect to incur fixed costs of 172,000. Required: (a) Draw a break-even chart recording: Fixed costs - Total costs - Total revenue (b) From the chart estimate the break-even point in units and in sales value for Finch Fletcher for the year ending 31 March 2012. (c) Use the break-even formula to calculate the break-even point in units and in sales value for Finch Fletcher for the year ending 31 March 2012. 2. (Understanding CPV analysis). Jobbing Builders PLC constructs a standard unit which sells for 100,000. The company's costs can readily be identified between fixed and variable from the following budgeted data, the fixed costs having been spread evenly over the six month period to arrive at the projected monthly profit: Sales Units 20 30 Month July August September October November December Profit/(loss) 000s 100 500 300 900 (300) 20 25 40 10 18 Required: (a) Prepare a graph to show the monthly break-even point expressed in units and revenue. (b) Show clearly on your graph the margin of safety expressed in units and revenue for the month of October (c) Confirm your answer in (a) by showing calculations of the break-even point. (d) Calculate the margin of safety for the month of August, expressed as a percentage of sales. (e) What monthly volume of sales would be required to achieve a profit of 1 million? 3. [Understanding relevant costing). Ince Pargeter Limited manufactures padded carrying cases for laptop computers. The market is currently buoyant, and the company's factory is working to capacity. The company has been offered the opportunity to compete for a contract for 10,000 cases per year at a selling price of 15 per case. This is below the company's usual selling price of 17.25. Variable costs of manufacture would be the same as for existing cases, which is 5.63. However, in order to be able to take on the contract the company would need to expand its production facilities. For technical reasons it would be impossible to expand production to increase capacity to produce exactly 10,000 additional units. The expansion of facilities would increase capacity to the point where 20,000 additional units could be manufactured. Ince Pargeter's sales director thinks it is possible that he may be able to obtain additional orders that will use up the spare capacity. If production facilities were expanded, fixed costs would rise from 283,000 to an estimated 390,000. Required: Advise the company on whether or not it should expand its production facilities. 4. [Understanding limiting factor analysis). Jackson Demetrios Limited manufactures three different types of office desk. Type A has extra drawers, type B has a printer shelf and type C has a moveable footrest. In the company's present factory, production facilities are limited and there is a restriction on the number of machine hours available. The directors have considered moving to larger premises, but they are unwilling to make the move just at the moment because of fears of a downturn in the office furniture market. f Cost and selling price information for each type of desk is as follows: Type A Type B Type C Selling price per unit 175 160 165 Variable materials costs Wood 37 35 35 Plastics 16 15 18 Screws and fixings 2 2 2 Variable labour costs 16 16 Machine hours required per unit 2.5 hours 2.0 hours 2.1 hours Sales demand for 20X6 1,400 1,600 1,550 18 Machine hours currently available are 4,000 hours per year. Required: (a) Advise the directors on the most profitable production plan available to them without further expansion of the premises. (b) Calculate the overall contribution to fixed costs (to the nearest ) if your recommended production plan is followed. Core textbook end-of-chapter review questions/exercises [Answers to these questions can be found at the back of the textbook] Review questions 7.1,7.2, 7.3, 7.4 Exercise 7.4