QUESTION 2 (15 Marks)

Maroela (Pty) Ltd is a small perishable grocer operating out of Centurion in Gauteng. It was established nearly 30 years ago. Lately the operation has been under margin & volume pressure from the bigger chain stores operating in the greater Pretoria area. Last month the Maroela had revenues (sales) of R220 000, a C/M ratio of 40% and a M/S ratio of 30%. During the current month, a decrease in sales price and a decrease in fixed costs have resulted in a C/M ratio of 36% and a M/S ratio of 24%.

Assume that variable costs (in Rand) will remain constant. Nett operating margin for last month was 12% & 8,64% in the current month M/S = Margin of safety ratio C/M = Contribution margin ratio

Required

a)The amount revenues (sales) decreased

b)New break-even point (rand)

c)Income during the current month

d) Decrease in fixed costs

e)You are the management accountant of Maroela. Explain the CEO the difference between Absorption Costing & Variable Costing and the usage of both methods in the case of Maroela 3