COST VOLUME PROFIT ANALYSIS

Question 1

Bun and Sugar Bakery is a famous baker in Malaysia. The company opened a new branch in Ipoh. In early 2009, the company introduced a new product named almond bun. The selling price was RM 0.80 per unit. Unit variable cost was RM 0.50, which include the cost of labor, almond, flour, sugar and wrappers. The company also incurred RM 120,000 of annual fixed cost to produce the product. At the end of 2009, Bun and Sugar Bakers reported sales of 2 million units for this product.

However, Mr Irfan, the president of the company was unhappy with the companys performance in 2009. He proposed several strategies to improve companys profit. Four possible strategies are as follows:

Intensive promotion

Improve product quality

Increase selling price

Combination of all strategies

Required:

Compute unit contribution margin for the product. By using contribution concept, calculate break-even point in unit and RM.

(6 marks)

What are the desired sales (in unit) for that is sufficient to realize RM 270,000 targeted profit?

(3 marks)

In order to improve product quality, it requires an increase of variable cost per unit to RM0.60. Determine the break-even point in unit if this strategy is accepted.

(4 marks)

If cost material increased by 40%, compute proposed selling price so that the contribution margin ratio remained unchanged.

(4 marks)

Determine the profit for 2010, if the units being sold are doubled from 2009 and the fixed cost increased by RM 200,000 as a result of intensive promotion. (Assume the selling price and other cost remained unchanged).