MZUMBE UNIVERSITY

DEPARTMENT OF ACCOUNTING AND FINANCE

ACC 215/271 COST AND MANAGEMENT ACCOUNTING
CVP TUTORIAL QUESTIONS
1. How is cost - volume - profit analysis used in planning?
2. How does contribution margin income statement differ from convention
income statement? Which is more useful for predicting the income effect of a
change in sales? Why?
3. Why is relevant range important in cost - volume - profit analysis
4. How does increase in fixed expenses affect break-even point? How does
decrease in fixed expenses affect break-even sales? Give reason for each.
5. How does increase in sale price affect break-even point? How does decrease
in sale price affect break-even sales? Give reason for each
6. How does marginal of safety serve as a measure of risk?

7. You were recently hired as an accounting intern at Changarawe. Your boss,

Mr. Cheng, hand you the following information from September operations
and ask you to compute gross margin and contribution margin.

TZS

Variable manufacturing cost of goods sold 50,000

Fixed marketing expense 12,000
Research and development (fixed) 3,000
Sales commissions 2,500
Fixed manufacturing cost of goods sold 20,000
Sales revenue 100,000
Delivery expense (variable) 5,000

8. Flex-Med Inc., produces medical tubing. The company incurs TZS100,000 of

fixed expenses per month. It sells the tubing for TZS20 per yard, and it
incurs variable expenses at the rate of TZS9 per yard.
a. Prepare a contribution margin income statement, assuming that
Flex-Med sells 15,000 yards of tubing in July.
b. CEO John Hand thinks Flex-Med could increase its sales to 25,000
yards of tubing in August if the company paid its sales forces a
commission of TZS1 per yard. What would be Flex-Med's operating
income if it adopted the sales commission plan? Should Flex-Med
adopt the sales commission plan? Why or Why not
9. ANGEEZ Ltd makes bicycles, the costs and selling price of which are:
Direct materials cost per unit TZS 4,800
Direct labour cost per unit TZS 800
Variable overhead costs per unit TZS 80
Fixed overhead costs TZS 2,960,000
Selling price per unit TZS 14,000
Normal period sales are 500 units but up to 700 units could be made in
a period.
Required:
a) What is the company’s BEP (units)?
b) The company’s expected margin of safety.
c) If the company wants to make profit of TZS1,168,000, how many
units must be sold?
d) Prepare contribution margin income statement of ANGEEZ Ltd
e) The business has received an offer to sell 650 bicycles. Doing so
would reduce selling price by 10 percent. What advice would you give
ANGEEZ Ltd concerning the offer, on the basis of the values of
marginal of safety and profit figures

10. APAMA manufacture a single product, for which data is given below:
TZS
Direct materials per unit 280
Direct labour per unit 120
Variable overheads per unit 80
Fixed production costs per unit 80
Fixed selling costs per unit 80
Selling price per unit 720
These figures are based on an expected volume of production of 15000
units.
a) What is the company’s BEP (units)?
b) If the company wants to make profit of TZS 360,000, how many units
must be sold?
c) If costs increase by 10% but selling prices remain unchanged, by how
much must sales change from the original expected volume (15000) to
achieve profit of TZS 360,000?
d) What is APAMA margin of safety for the budget period if fixed cost
prove to be 20% higher than budgeted.
11)Anne Ltd incurred the following costs in a period for his sole product:
Tshs
Labour (25% variable) 16,000
Material (100% variable) 24,000
Selling Costs (10% Variable) 4,000
Other Costs (Fixed) 14,000
Total Costs 58,000
 A normal period sales are 500 units at TZS 140, but up to 650 units
could be made in a period. Various alternatives are being considered:
i. Reduce the price to TZS 126 each and sell all that could be made
ii. Increase price to 160 each at which price sales would be 400 units
iii. Keep the present plan
Required:
a) What is the most profitable plan?
b) What is the Contribution Margin Sales ratio?
c) What is the breakeven point (units) for each alternative?

12)Kwick-Mart convenience store has a monthly operating income target of

TZS6,000. Variable expenses are 70% of sales, and monthly field expenses
are TZS9,000. Compute the monthly margin of safety in TZS if the store
achieves its income goal. Express Kwick-Mart's margin of safety as a
percentage of target sales
13)For several years, Gotham Diner has offered a lunch special for TZS 5.00.
Monthly fixed expenses have been TZS 4,500. The variable cost of a meal
has been TZS 2.00. Rebecca Klein, the owner, believes that by remodeling
the diner and upgrading the food services, she can increase the price of the
lunch special to TZS 5.25. Monthly fixed expenses would increase to TZS
6,600 and the variable expenses would increase to TZS2.10 per meal. Use
the contribution margin ratio approach to compute Klein's monthly break-
even sales in TZS before and after remodeling.