Tutorial Question

UNIT 6: Cost-Volume-Profit Analysis

1) Bombay Bridal Boutique is a renowned establishment known for its exquisite wedding
dresses. The cost of each dress is comprised of the following: Selling price of R1 000 and
variable costs of R400. To keep the store operating and offer these stunning dresses to brides-
to-be, they also have total fixed costs of R90 000.

Required:

a) What is the contribution margin per dress?

b) What is the Bombay Bridal Boutique’s total profit when 200 dresses are sold?

c) How many dresses must Bombay Bridal Boutique sell to reach the breakeven point?

d) How many dresses must Bombay Bridal Boutique sell to yield a profit of R60 000?

e) Suppose the management aims to achieve a profit target of R265,000. What is the target
volume?

2) Venture Construction sells several products. Information of their average revenue and costs
are as follows:

Selling price per unit R20.00

Variable costs per unit:

Direct materials R4.00

Direct manufacturing labor R1.60

Manufacturing overhead R0.40

Selling costs R2.00

Annual fixed costs R96 000

Required:

a) Calculate Venture Construction’s contribution margin.

b) Calculate their contribution margin ratio

c) Calculate their break-even sales.

d) Assume that management aims to achieve a profit target of R225 000. What is the target
sales?

e) What is the margin of safety when actual sales amount to R450 000?