Cost-volume-profit (CVP) Analysis

Question 1

Voltar Company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The company's contribution format income statement for the most recent year is given below:

Total

(RM)

Per unit

(RM)

Percent of sales

Sales (20,000 units)

1,200,000

60

100%

Variable expenses

(900,000)

(45)

?%

Contribution margin

300,000

15

?%

Fixed expenses

(240,000)

Net profit

60,000

Management is anxious to increase the company's profit and has asked for an analysis of a number of items.

Required:

Compute the company's contribution margin ratio and variable expense ratio.

Compute the company's break-even point in both units and sales value.

Assume that sales increase by RM400,000 next year. If cost behavior patterns remain unchanged, by how much will the company's net profit increase? Use the contribution margin ratio to compute your answer.

Refer to the original data. Assume that next year management wants the company to earn a profit of at least RM90,000. How many units will have to be sold to meet this target profit?

Refer to the original data. Compute the company's margin of safety in units, RM and percentage form. You are required to explain what these numbers represent.