MA 2 : COST VOLUME PROFIT ANALYSIS

The managers of Stretch are currently reviewing the profitability of an existing product In order to help them to reach a decision about future production and sales plan. the management accountant has produced some preliminary sales and costdata for next year, as follows: Budgeted sales 71000 units at RMZG each Direct labour costs RMB per unit Direct material costs RM 4 per unit Fitted production ccet RIM per unit Note that xed production costs are based on budgeted sales units. Required: a. Calculate the breakreven point of sales, in units and explain the signicant of the answer. {7 Marks) Calculate contribution margin ratio and the break even sales revenue using contribution margin ratio {3 Marks) Calculate the margin of safety. both in units and in value and explain the signicant ofthe answer. {5 Marks) What would be the effect onthe break even level or sales if the selling price of the product was reduced to mine per unit, assuming that the change in sales price has no effect on the costs? (Round up the answer It: the nearest units). {3 Marks) Determine the number of units ofthe product that could need to be sold to achieve a profit of RMQDJJOD In the yeah assuming that the sales price is held at RMZD per unit. {3 Marks) Explain FOUR {4) limitations of the break-even analysis. {8 Marks)