TRƯỜNG ĐẠI HỌC THƯƠNG MẠI

HỌC KỲ II NĂM HỌC 2020 – 2021

(Phần dành cho sinh viên/ học viên)
Bài thi học phần: Kế Toán Quản Trị Số báo danh: 34

Mã số đề thi: 02 Lớp: K54DD

Họ và tên: Phạm Phương Thảo
Ngày thi: 11/6 Số trang: ………..….
Điểm kết luận:
GV chấm thi 1: …….………………………......

GV chấm thi 2: …….………………………......

Question 1:

*What is Cost- Volume – Profit analysis :

Cost Volume Profit Analysis (CVP) looks at the impact on the operating profit due to the
varying levels of volume and the costs and determines a break-even point for cost
structures with different sales volumes that will help managers in making economic
decisions for short term.

Cost-Volume-Profit analysis is an analytical tool for studying the relationship between

volume, cost, prices, and profits. It is very much an extension, or even a part of marginal
costing. It is an integral part of the profit planning process of the firm.

However, formal profit planning and control involves the use of budgets and other
forecasts, and the CVP analysis provides only an overview of the profit planning process.
Besides it helps to evaluate the purpose and reasonableness of such budgets and
forecasts.

The cost-volume-profit analysis, also commonly known as break-even analysis, looks to

determine the break-even point for different sales volumes and cost structures, which can
be useful for managers making short-term economic decisions. CVP analysis makes
several assumptions, including that the sales price, fixed and variable cost per unit are
constant. Running this analysis involves using several equations for price, cost and other
variables, then plotting them out on an economic graph.

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 The CVP formula can be used to calculate the sales volume needed to cover costs and
break even. The break-even point is the number of units that need to be sold, or the
amount of sales revenue that has to be generated, in order to cover the costs required to
make the product.

- The CVP breakeven sales volume formula is as follows:

FC
Breakeven Sales Volume= CM

+ FC=Fixed cost

+ CM=Contribution margin=Sales−Variable Costs

CVP analysis provides answers to questions such as:

(a) What will be the effect of changes in prices, costs, and volume on profits?

(b) What minimum sales volume need be affected to avoid losses?

(c) Which product is the most profitable one and which product or operation of a plant
should be discontinued? Etc.

The three elements involved in CVP analysis are:

1. Cost, which means the expenses involved in producing or selling a product or

service.
2. Volume, which means the number of units produced in the case of a physical
product, or the amount of service sold.
3. Profit, which means the difference between the selling price of a product or service
minus the cost to produce or provide it

*The importance of cost – volume – profit analysis for decision making in service
companies :

The CVP analysis is very much useful to management as it provides an insight into the
effects and inter-relationship of factors, which influence the profits of the firm. The
relationship between cost, volume and profit makes up the profit structure of an
enterprise. Hence, the CVP relationship becomes essential for budgeting and profit
planning.

As a starting point in profit planning, it helps to determine the maximum sales volume to
avoid losses, and the sales volume at which the profit goal of the firm will be achieved.

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As an ultimate objective it helps management to find the most profitable combination of
costs and volume.

A dynamic management, therefore, uses CVP analysis to predict and evaluate the
implications of its short run decisions about fixed costs, marginal costs, sales volume and
selling price for its profit plans on a continuous basis.

CVP analysis is a way to find out how changes in variable and fixed costs affect a firm's
profit. Companies can use CVP to see how many units they need to sell to break even
(cover all costs) or reach a certain minimum profit margin. CVP analysis makes several
assumptions, including that the sales price, fixed and variable cost per unit are constant.

*Example:

Voltar Company manufactures and sells a specialized cordless telephone for high
electromagnetic radiation environments. The company’s contribution format income
statement for the most recent year is given below: .
. Total Per Unit Percent of Sales

Sales (20,000 units) . . . . . . . . . . . $1,200,000 $60 100%

Variable expenses. . . . . . . . . . . . . 900,000 $45 25 %

Contribution margin . . . . . . . . . . . 300,000 $15 75 %

Fixed expenses . . . . . . . . . . . . . . . 240,000

Net operating income. . . . . . . . . . $ 60,000

Refer to the original data. In an effort to increase sales and profits, management is
considering the use of a higher-quality speaker. The higher-quality speaker would
increase variable costs by $3 per unit, but management could eliminate one quality
inspector who is paid a salary of $30,000 per year. The sales manager estimates that the
higher-quality speaker would increase annual sales by at least 20%

Require : Assuming that changes are made as described above, prepare a projected
contribution format income statement for next year. Show data on a total, per unit, and
percentage basis. Would you recommend that the changes be made?

Because sales would be increased by 20% => Units would be solve = 20.000 * 1,2 =
24.000 units. => Total sale = 24.000*60 = 1.440.000

VC per unit after increase variable cost by $3 : 45 + 3 = $48

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CM per unit = 60 – (48 + 3 ) = 12$

. Total Per Unit Percent of Sales

Sales (24,000 units) . . . . . . . . . . . $1,440,000 $60 100%

Variable expenses. . . . . . . . . . . . . $1,152,000 $48 80 %

Contribution margin . . . . . . . . . . . $288,000 $12 20 %

Fixed expenses . . . . . . . . . . . . . . . $210,000

Net operating income. . . . . . . . . . $ 78,000

+ Unit sale to breake-even point ( 20.000 units ) = Fixed expense/ Units CM

= 240.000/15 = 16.000 ( Units)

+ Unit sale to breake-even point ( 24.000 units ) = Fixed expense/ Units CM

= 288.000/12 = 17.500 ( Units )

+ CM = (60 – 48 )*20.000 = 300.000

+ CM’ = ( 60 – 48 )*24.000 = 288.000

ΔCM = 288.000 – 300.000 = -12.000

ΔFC = -30.000

ΔP = (-12.000) – (-30.000) = 18.000

+ Margin of safety = Total sales – BEP in sales = 1.440.000 – ( 210.000 / ( 12/60 ) =

390.000

=>The changes should be made because it increase company’s net operating income
from 60.000 to 78.000 which could made profit of 18.000. The BEP would also be higher
by 1500 units ( from 16.000 to 17.500 units) and margin of safety would become greater
than before. Thus price per unit comes out to $60, which implies that the Volta Compant
will have to price its product $60 and need to sell 24000 units to achieve its targeted
profit (NOI) of $78000

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1.2. Write True or False and explain your choice:

a. The carrying cost of inventory on hand is the relevant cost

=> True

b. If a product line/segment is generating a loss, then it should be discountinued.

=> False

Explain : It is not necessary because an apparent loss may be the result of allocated
common costs or of sunk costs that cannot be avoided if the product line is dropped.A
product line should be discontinued only if the contribution margin that will be lost as a
result of dropping the line/segment is less than the fixed costs that would be avoided.
Even in that situation the product line may be retained if it promotes the sale of other
products.

c. All future costs are relevant in decision making.

=> False

Explain: Relevant cost are those costs that will make a difference in a decision. Future
costs are relevant in decision making if’ the decision will affect their amounts.There are
many costs in the future that are relevant to incremental Cost, opportunity Costs, etc.
There are costs also incurred in future but not relevant in decision making such as sunk
cost, committed costs, non-cash expenses, general overheads, etc. So finally we can say
that all future costs are not always a relevant cost.

d. Managerial accounting places less emphasis on precision and more emphasis on the
timeliness of information than financial accounting

=> True

Explain : Managerial accounting is more focused on timeliness. It is considered as a

future-oriented process as it is concerned with recording and reporting future transactions
based on effective decision making.On the other hand, financial accounting is considered
as a process focused on recording past transactions of an organization for representing
the financial information to its users. Therefore, it places more emphasis on timeliness
and less emphasis on precision

e. The amount of net income presented on a functional income statement will be diffirent
from the amount of net income presented on a contribution format income statement.

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=> False

Explain: The amount of net income presented on a functional income statement will be
the same with the amount of net income presented on a contribution format income
statement. The diffirent of them is : While a function income statement works by
separating product costs (those incurred in the process of manufacturing a product)
from period costs (those incurred in the process of selling products, as opposed to
making them), the contribution margin income statement separates variable costs from
fixed costs.

Question 2 :

The following information relates to the only product manufactured and sold by
HBA Plc of each month for the year 202N:

Items Amount
The selling price per unit $150
Direct material cost per unit $50
Direct labor cost per unit $25
Variable production overhead per unit $10
Sale commissions per unit $5
Actual fixed production overhead $45000
Marketing overhead $32000
General office supplies $2000
Sales manager’s salary $10000
Rent on office building $7300
Depreciation, office equipment $2500
General office salaries $11200

The following levels of units place take over the first three months of the products life :

Moth Production Units Sale units

January 4500 4350
February 5400 5500
March 6800 6820
Budgetted fixed production overhead was $544000 per year. All fixed production
overhead costs are budgeted on the basis of a project volume of 80000 units per year and
all cost are expected to be incurred at a constant rate throughout the year.

2a. Calculate the under or over absorbed production overhead for each month.

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Fixed production overhead absorption rate (FOAR) =
Budgeted ¿ productionoverhead ¿
Budgeted units

= $544.000/80.000 = $6,8 per unit

Absorbed overhead = Actual units × FOAR

Moth Production Overhead Actual Under or over

Units absorbed ($) overhead absorption ($)
January 4500 30600 45000 Under 14400
February 5400 36720 45000 Under 8280
March 6800 46240 45000 Over 1240

2b. Calculate the value of closing inventory in March using absorption costing and
marginal costing.

Month Unit
Opening inventory 0
Production 4.500
January
Sales (4.350)
Closing inventory 150
Opening inventory 150
Production 5.400
February
Sales (5.500)
Closing inventory 50
Opening inventory 50
March
Production 6.800
Sales (6.820)
Closing inventory 30

+ Marginal costing:

Variable costs per unit $

Direct materials 50
Direct labour 25
Variable production overhead 10
Marginal cost per unit 85

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=> The value of closing inventory in March = $85 × 30 = $2.550

+ Absorption costing

Absorption cost of producing per unit (6.800) $

Direct materials 50
Direct labour 25
Variable production overhead 10
Fixed overhead absorbed 6,8
Total cost 91,8

=> The value of closing inventory in March = $91,8 × 30 = $2.754

2c. Prepare an income statement for each month using absorption costing and marginal
costing

 Absorption costing:

(1) Value of inventory and production (valued at $91.8)

Opening inventory Production Closing inventory

January 0 $413,100 $13,770(=150×$91.8)
(=4,500×$91.8)
February $13,770 $495,720 $4,590 (=50×$91.8)
(=5,400×$91.8)
March $4,590 $624,240 $2,754
(=6,800×$91.8)

(2) Absorption costing income statement

January ($) February ($) March ($)

Sales (sale units × 652,500 825,000 1,023,000
$150)
Less cost of sales
Opening inventory 0 13,770 4,590
Production 413,100 495,72 624,24
0 0
Closing inventory (13,770) (399,330) (4,590) (504,900) (2,754) (626,076)

(Under)/over absorbed (14,400) (8,280) 1240

Fixed production o/h

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Gross profit 238,770 311,820 398,164
Less selling &
administrative
expenses
Variable 23,750 29,500 36,100
- Sale commissions 21,750 27,500 34,100
(sale units × $5)
- General office 2,000 2,000 2,000
supplies
Fixed 63,000 63,000 63,000
- Rent on an office 7,300 7,300 7,300
building
- Depreciation, office 2,500 2,500 2,500
equipment
- Sales manager’s 10,000 10,000 10,000
salary 11,200 11,200 11,200
- General office 32,000 (86,750) 32,000 (92,500) 32,000 (99,100)
salaries
- Marketing overhead
Net income 152,020 219,320 299,064

 Marginal Costing:

(1) Value of inventory and production (valued at $85)

Opening inventory Production Closing inventory

January 0 $382,500 (=4,500×$85) $12,750(=150×$85)
February $12,750 $459,000 (=5,400×$85) $4,250 (=50×$85)
March $4,250 $578,000 (=6,800×$85) $2,550

(2) Marginal costing income statement

January ($) February ($) March ($)

Sales (sale units × 652,500 825,000 1,023,000
$150)
Less variable
expenses
Opening inventory 0 12,750 4,250
Production 382,500 459,00 578,00
0 0
Closing inventory (12,750) (369,750) (4,250) (467,500) (2,550) (579,700)

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Variable seliing &
administrative (23,750) (29,500) (36,100)
- Sales commission 21,750 27,500 34,100
- General office 2,000 2,000 2,000
supplies
Contribution 259,000 328,000 407,200
Less fixed costs
Fixed production 45,000 45,000 45,000
Fixed selling &
administration 63,000 63,000 63,000
- Rent on an office 7,300 7,300 7,300
building
- Depreciation, office 2,500 2,500 2,500
equipment
- Sales manager’s 10,000 10,000 10,000
salary 11,200 11,200 11,200
- General office 32,000 (108,000) 32,000 (108,000) 32,00 (108,000)
salaries 0
- Marketingn overhead
Net income 151,000 220,000 299,200

2d. Explain the reason for any diffirence in the reported profit under the two bases
for each month.

The difference between the profit figures calculated under absorption and marginal
costing principles is because of the treatment of fixed production overheads.While
marginal costing shown the full amount of fixed production overheads in the period that
it occurs ,in absorption part of the fixed production overheads is carried between
accounting periods as part of inventory valuations.

In the other hand, in marginal costing, the value of inventory at the end of the period is
calculated according to Marginal production cost (only the variable cost part is
calculated), fixed costs are recognized as period costs, and fixed overheads are not
included in COS. In absorption costing, the ending inventory value includes all costs
(fixed and variable costs) incurred in the production process (full production costs), fixed
costs are absorbed into unit costs and fixed overheads are included in COS.

Reconciliation of profit figures:

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 January February March
Profit under absorption $186.020 $253.320 $333.064
Difference in profit = Difference in ($1.020) (=150 $680 (=100 $136 (= 20
units of inventory × fixed production units × $6,8) units × $6,8) units × $6,8)
overhead per unit
Profit under marginal costing $185.000 $254.000 $333.200

=> When the number of units produced is higher than the number of units sold
absorption

profit will be higher than marginal profit as January ($186.020>$185.000)

When the number of units produced is less than the number of units sold absorption

profit will be lower than marginal profit as February and March ($253.320<$254.000 and
$333.064<$333.200).

The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitle d in exchange for those goods or services.  This core principle is delivered in a five-step model framework

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