Question 1

a. i. Product P Product E
Cost per unit: RM RM
Selling price 10.00 12.00
Variable costs (5.00) (10.00)
Contribution 5.00 2.00
Weightage 4.00 3.00
Weighted contribution 20.00 6.00

Total weighted contribution

Weighted average contribution per unit =
Total weightage
RM 26.00
=
7.00
= 3.714

Fixed costs
Breakeven point (units) =
WACU
RM 561,600
=
3.714
= 151,200

Product Breakeven in units Breakeven in RM

P 86,400 864,000
(4/7 x 151,200) (86,400 x 10)
E 64,800 777,600
(3/7 x 151,200) (64,800 x 12)
Total 151,200 1,641,600

a. ii. Product P Product E

Cost per unit: RM RM
Selling price 10.00 12.00
Variable costs (5.00) (10.00)
Contribution 5.00 2.00
Weightage 4.00 4.00
Weighted contribution 20.00 8.00

Total weighted contribution

Weighted average contribution per unit =
Total weightage
RM 28.00
=
 =
8.00
= 3.500

Fixed costs
Breakeven point (units) =
WACU
RM 561,600
=
3.500
= 160,458

Product Breakeven in units Breakeven in RM

P 80,229 802,290
(4/8 x 160,458) (80,229 x 10)
E 80,229 962,748
(4/8 x 160,458) (80,229 x 12)
Total 160,458 1,765,038

a. iii. It is advised that the product mix of 4P to 3E is better because it leads to a higher WACU and
a lower total breakeven level. This means that the product mix of 4P to 3E has a higher profit
generating capacity than the product mix of 4P to 4E. In addition, the total breakeven level of
the product mix of 4P to 3E is lower than the product mix of 4P to 4E. Thus, by adopting the
product mix of 4P to 3E, PE Limiited can cover all its fixed and variable expenses with slightly
lower sales.
Based on the above calculation, the company should choose the sales mix that earns the
higher WACU which in this case is 4P to 3E due to the higher intensity to generate a profit.

a. iv. Product P Product E

Contribution/ unit (RM) 5.00 2.00
Machine hour per unit 0.40 0.10
Contribution per MH 12.50 20.00
Production ranking 2nd 1st

Product P Product E
Total machine hour - 32,000.00
Machine hour per unit 0.40 0.10
Maximum sales units - 320,000.00

Contribution/ unit 5.00 2.00

Gross contribution (RM) 0.00 640,000.00
Less: Fixed costs (RM)
Profit
Product E should be concentrated because it leads to a higher contribution per machine hour,
so it is worthwhile to produce Product E in order to obtain higher profits.

Based on the abova calculation, the company should focus its production on Product E as it
earns a higher contribution per machine hour compared to P. 32,000 machine hours can
produce 320,000 units of Product E to earn a profit of RM 78,400.
 Total
RM

7.00
26.00

tal weighted contribution

Total weightage

(RM)

units

Total
RM

8.00
28.00

tal weighted contribution

Total weightage
 (RM)

units

use it leads to a higher WACU and

mix of 4P to 3E has a higher profit
dition, the total breakeven level of
4P to 4E. Thus, by adopting the
nd variable expenses with slightly

se the sales mix that earns the

er intensity to generate a profit.

Total

640,000.00
561,600.00
78,400.00
her contribution per machine hour,
igher profits.

its production on Product E as it

P. 32,000 machine hours can
78,400.
Question 2
a. i. Manual Computer-aided
Thingone Thingone
Cost per unit: RM RM
Sales revenue 20.00 20.00
(80,000/ 4,000)
Less: Variable costs
Material and labour 15.00 12.75
(60,000/ 4,000) (15.00 x 85%)
Contribution 5.00 7.25

Breakeven point (units) = Fixed costs

Contribution per unit

Breakeven point for Thingone

Process Breakeven in units Breakeven in RM
Manual 6,300 126,000
(27,900 + 3,600) / 5 (6,300 x 20)
Computer-aided (27,900 + 3,600 + 6,000 120,000
12,000) / 7.25 (6,000 x 20)

Differential fixed cost

Indifference point =
Differential variable cost per unit

= RM 12,000
(RM 15.00 - RM 12.75)

= 5,333.33

Indifference point (RM)

5,333.33 x RM 20
=
= 106,666.67 (RM)

a. ii. Manual Computer-aided

Thingtwo Thingtwo
Cost per unit: RM RM
Sales revenue 50.00 50.00
(100,000/ 2,000)
Less: Variable costs
Material and labour 31.00 26.35
 (62,000/ 2,000) (31.00 x 85%)
Admin and bad debts 2.00 2.00
(50 x 4%)
Financing costs 3.00 3.00
(50 x 2% x 3)
Total variable costs 36.00 31.35
Contribution 14.00 18.65

Manual
Thingone Thingtwo
Cost per unit: RM RM
Contribution 5.00 14.00
Weightage 4.00 1.00
Weighted contribution 20.00 14.00

Total weighted contribution

Weighted average contribution per unit =
Total weightage

Breakeven point (units) = Fixed costs

WACU

Manual Computer-aided
WACU (RM) 6.80 9.53
(34/ 5) (47.65/ 5)
Breakeven point (units) 4,633.00 4,565.00
(27,900 + 3,600)/ 6.80 (31,500 + 12,000)/ 9.53

Manual
Product Breakeven in units Breakeven in RM
Thingone 3,706 74,128
(4/5 x 4,633) (3,706 x 20)
Thingtwo 927 46,330
(1/5 x 4,633) (927 x 50)
Total 4,633 120,458

Let x = quantity of indifference between the two processes

This is when the profit earned is the same for both processes

Profit (manual) = Profit (computer-aided)

6.8x - 31,500 (FC) = 9.53x - 43,500 (FC)
 2.73x = 12,000
x = 4,395.60

Product Indifference in units Indifference in RM

Thingone 3,516 70,330
(4/5 x 4,395.60) (3,516 x 20)
Thingtwo 879 43,956
(1/5 x 4,395.60) (879 x 50)
Total 4,396 114,286

b.

c.
 Let x = quantity of indifference between the two processes
This is when the profit earned is the same for both processes

Profit (manual) = Profit (computer-aided)

5x - 31,500 (FC) = 7.25x - 43,500 (FC)
2.25x = 12,000
units x = 5,333.33
ual Computer-aided
Total Thingone Thingtwo Total
RM RM RM RM
7.25 18.65
5.00 4.00 1.00 5.00
34.00 29.00 18.65 47.65

tal weighted contribution

Total weightage

Computer-aided
Breakeven in units Breakeven in RM
3,652 73,040
(4/5 x 4,565) (3,652 x 20)
913 45,650
(1/5 x 4,565) (913 x 50)
4,565 118,690

puter-aided)
units
puter-aided)

units