Question 5

Mickey Ltd is a service firm with a current service revenue of $900 000 and a 40% contribution margin. Its fixed costs are $200,000. Minno Ltd has current sales of $420,000 and a 30% contribution margin. Its fixed costs are $90,000.

required

a) a contribution margin income statement for the two companies. (2 marks)

b) Calculate the breakeven point in sales dollars for the two companies

c) What is the margin of safety for the two companies? Which is stronger? (2 marks)

d) If sales increase for both companies, which company will realise the greatest increase in profits? Explain.

e) Would the CVP Analysis technique be appropriate as a planning tool for businesses operating during the global pandemic period? Explain.