Break-Even Analysis

Question 1

Tian Liang Bhd produces and sells a single product. Breakeven analysis is carried out for every
budget period to plan for sales level and targeted profit. The following information is available for
the coming budget period:

RM
Unit selling price 80

Unit variable costs: RM

- Raw material 25
- Direct wages 18
- Variable expenses 13

Fixed cost per period: RM

- Factory 70,600
- Marketing 46,200
- Delivery 18,560

The company plans to produce and sell 12,000 units in the coming budget period.

Required:

(a) Calculate the contribution / sales ratio.

(b) Calculate the break-even point in units and in sales value.

(c) Calculate the margin of safety in percentage of sales.

(d) Calculate the sales value required (to the nearest RM) to achieve a targeted profit of
RM85,500.

(e) Calculate the profit or loss that would be made if the sales volume is 16,600 units.

(f) Assuming that selling price is reduced by 8% and variable costs is increased by 6%. Calculate
the revised break-even point in units (to the nearest units) and in sales value (to the nearest
RM).
Question 2

Pink Sdn Bhd manufacturers and sells a single product. The following information is available for
2015:

Production and sales units 22,000

RM per unit
Selling price 65
Direct material 22
Direct labour 21
Variable overhead 10

Fixed overheads in total:

RM
Production 60,000
Administration 50,000
Selling 30,000

Required:

(a) Calculate the contribution / sales ratio (two decimal places).

(b) Calculate the break-even point in units and in sales value (round up to nearest unit and
value).

(c) Calculate the margin of safety in sales units (two decimal places).

(d) Calculate the sales in quantity and value required to achieve a targeted profit of
RM155,000.

(e) Calculate the likely profit or loss if the sales volume is 25,000 units.

(f) Assuming selling price will increase by 20% and variable costs will decrease by 40%,
calculate the revised break-even point in units and in sales value.
Question 3

Dream Sdn Bhd has the following information:

Sales value RM400,000

Variable costs 25% of sales
Fixed costs RM120,000

Required:

(a) Calculate the break-even point in Ringgit Malaysia (RM).

(b) Assuming the company wishes to revise its target profit to RM300,000, calculate the
revised sales value.

(c) After much consideration, the company decides to increase the variable cost to 40% of
sales and to increase fixed costs by RM20,000. Calculate:

(i) the revised profit

(ii) the revised break-even point in Ringgit Malaysia (RM).

Question 4

Home Dynamics Sdn. Bhd. has budgeted its costs and revenues for its sole product, Super Fix, for
the coming financial year as follows:

RM per unit
Selling Price 40.00
Direct Materials 8.00
Direct Labour 6.00
Variable Overhead 3.00

For the year concerned the budgeted fixed overhead is RM100,000 and the budgeted sales are
12,000 units.

Required:

(a) Calculate the contribution to sales rate (c/s ratio).

(b) Calculate the budgeted profit for the year.

(c) Calculate the following:

(i) the break even point in units.

(ii) the margin of safety in units.

(d) Determine the number of units to be sold to achieve a profit of RM180,000

(e) Calculate the break even point for each of following:

(i) Reduce the selling price to RM35 per unit with the expectation that this will
increase sales by 2,000 units with an increase in the fixed overhead of RM10,000
per annum.

(ii) Increase the selling price to RM45 per unit. This is expected to reduce the sales by
4,000 units and increase direct labour costs by RM2 per unit for all units, with fixed
cost remain unchanged.

(iii) Reduce the selling price to RM30 per unit with the expectation that this will
increase sales by 5,000 units, increase fixed overheads by RM12,000 and decrease
direct material costs by RM3 per unit for all units.
Question 5

Weng Lee Sdn Bhd carries out breakeven analysis for every budget period to plan for targeted
profit and sales levels. The following is the budgeted data for the coming budget period:

Variable cost per unit: RM

Materials 45
Labour 32
Expenses 26

Fixed overheads in total 140,000

The selling price for the single product is RM143.

Required:

(a) Determine the breakeven point for the coming budget period (both in units and sales value).

(b) Calculate the quantity of product to be sold in order to target a profit of RM28,000.

(c) The management is planning to have a sales promotion costing RM36,000, which is
expected to increase sales by 1,200 units. Advise whether it is worthwhile to be undertaken.

(d) The company is currently selling 4,000 units. The marketing manager has proposed to
reduce selling price by 10%, which is expected to increase demand by 15%. Compute the
revised contribution if the proposal is undertaken.

(e) Would the proposal in (d) above, result in an increased or reduced contribution compared
to the current position (measured in both RM and %)?
Question 6

Xi Hoo Bhd sells its single product at RM110 per unit. The forecast costs for the following budget
period is available as follows:

RM
Direct materials per unit 37
Direct labour per unit 22
Direct expenses per unit 15

Fixed costs in total 100,800

Required:

(i) Calculate the breakeven point in units and sales value.

(ii) How many units of product should be sold if the management wishes to earn a profit
of RM43,200?

(iii) The sales manager suggested a sales campaign, costing RM15,000, which is expected
to increase sales by 800 units. Explain whether the management should undertake the
sales campaign.

(iv) The sales demand is currently 3,500 units. The directors are considering a proposal to
reduce the selling price by 8%, which is expected to increase demand by 12%. If this
happens, what will the revised contribution be?

(v) Would the proposal in (d) above result in an increased or reduced contribution
compared to the current position (measured in both RM and %)?