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Question - Cost-Volume-Profit Relationships The Dustbuster Company (Dustbusters) imports and sells a single, highly specialised model of vacuum cleaner. The company uses a variable costing

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Question - Cost-Volume-Profit Relationships The Dustbuster Company (Dustbusters") imports and sells a single, highly specialised model of vacuum cleaner. The company uses a variable costing approach, and has just completed its budget for 2019. Dustbusters' budgeted income statement for the 2019 year appears below: Budgeted Variable Costing Income Statement of The Dustbuster Company for the Year ended 31/12/2019 Total Per Unit Sales (1,200 units x 250 each) 300,000 250 Less Variable Cost of Sales (1.200 units x 115 each) 138,000 115 Less Other Variable Costs (1,200 units x 25 each) 30,000 25 Contribution Margin 132,000 110 Less Fixed Costs: Administration 21,800 Sales and Marketing 20.000 Net Profit 90.200 Unfortunately, Dustbusters' management accountant fell ill before she could complete an analysis of the budgeted figures. The firm of accountants for which you are working has been engaged to do the analysis, and they have sent you along to Dustbusters. On your arrival, you are presented with the above income statement and asked to calculate the following: (Base all of your calculations on the above income statement, unless told otherwise). Required: (a) The Contribution Margin Ratio (1.0 Marks) (b) The break-even sales units, using the contribution margin approach (1.0 Marks) (c) The break-even sales units, using the formula approach (2.5 Marks) (d) The break-even sales value, using any approach you have learned (1.5 Marks) (e) The number of units to be sold to achieve a net profit of 101,200. (Selling price and costs per unit, and fixed costs. remain unchanged) (2.0 Marks) (6) The Margin of Safety (in units) (1.5 Marks) (9) The Margin of Safety percentage (1.5 Marks) (h) The Degree of Operating Leverage (1.5 Marks) The percentage increase in profit, if sales volumes increase by 10% (1.5 Marks) C) The Dustbusters' CEO believes that the company could sell 1,500 units in 2019 if the following changes were made: Reduce the selling price per unit to 230 Reduce variable cost of sales by 5 per unit Other variable costs per unit should be equal to 10% of the new unit selling price Fixed administration expenses should be increased by 10%, and fixed sales and marketing expenses should be increased by 8%. Required: Calculate the new budgeted net profit for Dustbusters for 2019, by drawing up a revised variable costing income statement which takes into account all of the above-mentioned changes. (6 Marks) (k) Mention four of the key assumptions on which CVP analysis is based. Also name the biggest weakness of CVP (in your opinion). (5 Marks) (Total: 25 Marks)

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