OBJECTIVE: Utilize the Cost Volume Profit analysis in making informed decisions and cost-effective actions related to the products or services the business sells.

REQUIREMENT: Cost Volume profit analysis

Question

Newton Company manufactures aluminium containers for restaurants. The owner of Newton, Ms Alice, believes that an aggressive campaign is needed next year due to the Singapore local markets uncertain conditions. Presented below is the data for the current year 2021, for use in next years campaign.

C

Ms Alice has set the sales target for the year 2022 at a level of SGD 550,000 (22,000 units of containers), or ten percent more than the sales in the year 2021. The selling price of the container is SGD 25 each, for both years.

Required:

1. Prepare a contribution margin income statement for the year 2021.
2. Calculate Newtons break-even point in units and Dollar for the year 2021
3. Ms Alice believes that to attain the sales in 2022; the company must incur an additional selling expense of SGD 10,000 for advertising in 2022, with all other costs remaining constant. What will be the break-even point in SGD sales for 2022 if the company spends the additional SGD 10,000?
4. Break-even analysis is of limited use to management because a company cannot survive by just breaking even. Do you agree with the statement? Explain.

Variable Costs per Box Manufacturing: Direct materials Direct labour per unit Manufacturing overhead Total COST SCHEDULE Fixed Costs per Month (SGD) Manufacturing overhead 4 Selling and Administrative 8 Total 3 15 (SGD) 25,000 110,000 135,000