Question 3 (Cost Volume Profit)

Online Computer Gaming Ltd has developed new gaming software which is sold on line at 45 per unit. Variable labour costs are 25 per unit, variable overheads are 7 per unit and fixed overheads for the year are budgeted at 195,000.

Required:

1. Calculate the breakeven point in units and value for the business.
2. How many units will need to be sold in order to produce a profit of 65,000?
3. What is the percentage margin of safety if 20,000 units are sold?
4. If the company adds an on-line technical advice service which will be charged at a rate of 10 per request and will have variable costs of 5 and will add 50,000 to annual fixed costs, what will be the new breakeven where just 50% of the customers avail of the service?
5. Briefly discuss the weaknesses of break-even analysis.
6. Advise the CEO in a briefing memo whether he should continue to insist on CVP calculations being presented at management meetings.

2- Management Account