QUESTION ONE a. You are presen

QUESTION ONE

a. You are presented with the following information for UnileverGhana Ltd.

Fixed costs                           GH¢150,000

Totalcosts                              GH¢ 400,000

Sales (50,000units)                GH¢ 500,000

Required:

Calculate the following:

(a) Break-even point in value terms and in units.(5marks)

(b) Margin of safety in value and in units.(5marks)

(c) Budgeted Profit for the period.(3marks)

(d) What is the relationship between sales revenue and margin ofsafety? (2marks)

b. State five (5) uses of the Cost- Volume-Profit (CVP) Analysis. (5marks)

Fixed Costs = GH₵150,000

Total Costs = GH₵400,000

Sales (50,000 units) = GH₵500,000

Variable Costs

= Total Costs – Fixed Costs

= GH₵400,000 – GH₵150,000

= GH₵250,000

Variable Cost per unit

= Variable Costs / Units

= GH₵250,000 / 50,000

= GH₵5

Selling Price per unit

= Sales / Units

= GH₵500,000 / 50,000

= GH₵10

Contribution per unit

= Selling Price per unit – Variable Cost per unit

= GH₵10 – GH₵5

= GH₵5

Profit Volume Ratio

= Contribution / Sales

= GH₵5 / GH₵10

= 50%

Requirement a:

(a) Break-even point in value

= Fixed Costs / Profit VolumeRatio

= GH₵150,000 / 50%

= GH₵300,000

Break-even point in units

= Fixed Cost /Contribution per unit

= GH₵150,000 / GH₵5

= 30,000 units

Break-even point:

Value = GH₵300,000

Units = 30,000

(b) Margin of safety in value

= Sales – Break-even point in value

= GH₵500,000 – GH₵300,000

= GH₵200,000

Margin of Safety in units

= Sales – Break-even point

= 50,000 – 30,000

= 20,000 units

Margin of Safety:

Value = GH₵200,000

Units = GH₵20,000

(c) Budgeted Profit for the period:

Sales                                                                     GH₵500,000

Less: VariableCosts                                       GH₵250,000

Contribution                                                     GH₵250,000

Less: FixedCosts                                             GH₵150,000

BudgetedProfit                                                               GH₵100,000

Budgeted Profit = GH₵100,000

(d) If the sales revenue increases, Margin of Safety increases.Hence the sales revenue and Margin of Safety are directlyproportional to each other.

Requirement b:

Uses of Cost – Volume – Profit Analysis:

1) It helps in analyzing which product is beneficial and whichgives the maximum profit

2) It helps to arrive at the number of units required to achievethe target profit

3) It also helps to calculate the number of units required to bemanufactured in order to avoid losses

4) It helps in making budgets

5) Based on the fixed costs , we can calculate the risks, ifany.

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