Question 2 normal annual to Jelutong Sdn Bhd produces a type of toy which is sol

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Question 2 normal annual to Jelutong Sdn Bhd produces a type of toy which is sold for RM110 per unit production and sales for the toys are 1,600 units, although the company has the capacity produce up to 2,000 units. 3- The following data consist of costs incurred during the year ended 2016: RM 40,000 ag a 40,000 12,800 25,000 20,000 Fc E 92, Material (100% variable) Labour (60% variable) Variable selling expenses Fixed selling expenses Fixed administrative expenses The management accountant of the company is proposing the following alternatives to increase sales for the year 2017 and to reduce the idle capacity: Reducing the selling price to RM100 per unit which would lead to an estimated increase in the sales volume by 20%. An increase in sales would result in an increase of variable labour cost per unit by 10%. Fixed selling expenses is also expected to increase to RM27,500 due to an aggressive advertising campaign planned to boost sales. 1. 2. 3. Required A. Determine the following costs in year 2016: i. Total variable costs per unit. (4 Marks) (4 Marks) (3 Marks) (3 Marks) (5 Marks) ii. Total fixed costs. B. Calculate the following in year 2016: i. Break-even points in units and value. i. Margin of safety in units and value. ii. The expected sales value if the company targets for a profit of RM60,000. C. Advise the management of James Bond Sdn Bhd if the company should implement the (8 Marks) (3 Marks) proposed alternative for year 2017. (Show profit comparison) D. Identfy any THREE (3) basis assumptions for implementing CVP analysis. Total: 30 Marks)

Explanation / Answer

A CALCULATION OFTOTAL VARIABLE COST PER UNIT a Material 25 (40000/1600) b Labor 25 (40000/1600) c Variable Selling expense 8 (12800/1600) d=a+b+c Total variablecost per unit 58 CALCULATION OF TOTAL FIXED COSTS: e Fixed Selling expenses            25,000 f Fixed administrative expenses            20,000 g=e+f Total Fixed Costs            45,000 B Break even point in units=Fixed costs/Unit Contribution Unit Contribution=SalesPrice per unit-Unit Variable costs Unit Contribution in 2016 52 (110-58) Breakeven point in units            865.38 (45000/52) Breakeven point in units 866 (rounded to next whole number) Breakeven point in Value            95,260 (866*110) MARGIN OF SAFETY: Margin of Safety in units 734 (1600-866) Margin of safety in value            80,740 (734*110) Expected Sales Value for Target profit of 60,000 Breakeven units            865.38 Additionalunit of sales required for profit of 60000        1,153.85 (60000/52) TotalSales in units required        2,019.23 (865.38+1153.85) TotalSales in units required              2,020 (rounded to next whole number) Expected Sales Value for Target profit of 60,000          222,200 (2020*110) C Unit Selling Price in 2017 100 Sales in units in 2017 1920 (1600*1.2) Variable cost per unit 63.8 (58*1.1) Unit Contribution 36.2 (100-63.8) TotalContribution in 2017            69,504 (36.2*1920) Total Fixed costs in 2017            47,500 (27500+20000) Expected Profit in 2017            22,004 (69504-47500) Contribution in 2016            83,200 (52*1600) Fixed costs in 2016 45000 ActualProfit in 2016            38,200 (83200-45000) There will be reduction of profit Hence the proposal shouldnot be implemented D BASIC ASSUMPTIONS: Fixed Cost isconstant and does not change with increase or decrease in volume Variable costs per unit remains constant Sales Price per unit is constant

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