Purpose

To enhance students' ability to utilise the CVP analysis for profit planning.

Requirement: Cost-volume-profit analysis

Company Z has two products (Z1 and Z2) with the following unit costs for a period: -

Z1 Z2

(RM/unit) (RM/unit)

Direct materials 1.20 2.30

Direct labour 1.40 1.50

Variable production overheads 0.70 0.80

Fixed production overheads 1.10 1.10

Variable selling overheads 0.15 0.20

Fixed selling overheads 0.50 0.50

Selling price 5.70 6.90

Production and sales of the two products for the period were: -

Z1 Z2

(`000 units) (`000 units)

Production 250 100

Sales 225 110

Required:

1. Explain whether, and why, absorption or marginal costing would show a higher company profit for the period, and calculate the difference in company profit depending upon which method is used. (7marks)

1. Calculate the: (8 marks)
2. breakeven sales units; and
3. breakeven sales revenue (based on average selling price) for the period (to the nearest RM`000) with regards to the above sales mix.