One of the roles of financial management is to assist businesses to choose low$-$risk investments

while ensuring higher returns. This idea is the foundation and held as a way to maintain and

maximise the shareholders$$ wealth or bondholders$$ profits. The following is an extract of

information from two companies: Cynored Pty Ltd and CB Electricity Pty Ltd respectively.

Cynored Pty Ltd CB Electricity Pty Ltd

Electricity Units Produced and Sold $25,00025,000$

Amount $($$$)$ Amount $($$$)$

Revenues $112500000112500000$

Total Costs $7500000075000000$

Variable Costs $2500000050000000$

Fixed Costs $5000000025000000$

Net Operating Income $3750000037500000$

Required:

i$.$ You are required to find the break$-$even point for each company in Units $(6$ marks$)$

ii$.$ Calculate the degree of operating leverage for each company at $25,000$ units $(8$ marks$)$

iii. Comment on the differences that you observe between these companies$$ break$-$even

points and degree of operating leverage $(6$ marks$)$

iv$.$ Based on the information on this question, how can the managements of Cynored Pty Ltd

and CB Electricity Pty Ltd use marginal costing in improving the fortunes of their

companies? $(5$ marks$)$