Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Porter Limited CVP Scenarios Porter Limited manufactures a single product which has the following cost structure based on an annual production budget of 10,000 units:

Porter Limited CVP Scenarios

Porter Limited manufactures a single product which has the following cost structure based on an annual production budget of 10,000 units:

Materials 4kgs @ 3 per kg 12

Variable direct labour 5 hours @ 7 per hour 35

Variable production overheads are recovered at a rate of 8 per direct labour hour. Other annual costs incurred by the company are as follows:

Factory fixed overheads 120,000

Selling and distribution overheads 160,000

Administration fixed overheads 80,000

The selling and distribution overheads are all fixed except for a variable element due to a distribution cost of 2 per unit.

The selling price per unit is 129.

REQUIREMENTS:

  1. Calculate the number of units to be sold for the company to break even.

  2. Calculate the margin of safety as a percentage of budgeted output.

  3. Calculate the revenue that will produce a net profit of 40,000.

  4. Calculate the effect on the number of units to be sold for the company to break even if the following scenario occurred: a 5% increase in both the factory and administration fixed overheads, together with an increase in the labour rate to 8 per hour and replacement of the variable distribution cost of 2 per unit with a fixed annual distribution cost of 18,150.

  5. Explain what you consider to be the value to managers of cost-volume-profit analysis, using brief examples to support your observations.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Accounting

Authors: Frederick D. Choi, Gary K. Meek

6th edition

131588141, 978-0131588141

More Books

Students also viewed these Accounting questions