Question one

a) Discuss the importance of Cost - Volume - Profit (CVP) analysis as a tool to assist

Management in decision making process

b) You are given the following information about ABC Company Ltd.

Fixed cost = $ 80,000

Break-even point = $ 200,000

Variable cost = $ 600 per unit 2

Required to calculate:

(a) Contribution margin ratio

(b) Profit when sales are $ 400,000

(c) New break-even point if selling price is reduced by 10%

Question 2

A service company was a warded a one week street cleaning contract in the Addis city at a

contract price of $ 6.20 per kilometer of road cleaned. The budget and actual results for period

were as follows:

Budget $ $

12,500 kilometer of cleaning @6.20 77,500

Direct labour (3200 hours@$7)22,400

Direct material (1250 Kgs.@$5) 6,250

Variable overheads (3200 Hrs. @$4.5) 14,400

Fixed overheads 25,600 (68,650)

Budgeted Surplus 8,850

Actual

11,750 kilometer of cleaned @6.2072,850

Direct labour (3050 h..s@$7.1) 21,655

Direct material (1160 Kgs.@$5) 5,800

Variable overheads 13,945

Fixed overheads 25,100 (66,500)

Actual Surplus6,350

Required

Calculate the following variances;

i) Sales quantity variance

ii) Labour rate variance

iii) Labour efficiency variance

iv) Material usage variance

v) Variable overhead expenditure variance

vi) Variable overhead efficiency variance

vii) Fixed overhead expenditure variance

viii) Fixed overhead capacity variance

ix) Fixed overhead efficiency variance