QUESTION 2 [CLO3]

Butik Menawan involves in the business of selling scarfs under the brand name Moon. The following is information related to its operation for the month of December 2020:

RM

Sales (4,600 pieces @ RM200) 920,000

Variable costs per piece:

Direct material 17

Direct labour 8

Factory overhead 15

Fixed costs per year:

Factory overhead 170,000

Selling and administration 326,000

Based on the above information, answer the following questions:

1. Explain the meaning of contribution margin. Then, determine the contribution margin per piece and contribution margin ratio for Moon.

(4.5 marks)

2. Calculate the break-even point for Moon in piece and RM.

(3.5 marks)

3. Explain what margin of safety is. Then, determine the margin of safety for Moon in piece and RM.

(4 marks)

4. The management plans to increase the sales activities to gain a target profit of RM80,000. Determine the total scarves that need to be sold in order to achieve the managements target.

(4 marks)

5. If the plan to increase the sales activities is implemented, Butik Menawan will increase the selling price to RM210 and the variable cost per piece will also increase by 25%. Calculate the new break-even point for Moon in piece and RM.

(12 marks)

6. Elaborate the how this cost-volume-profit analysis could bring benefit to Butik Menawan in managing its daily operation.

(12 marks)

(Sub total: 40 marks)