DEC2019 T2

Q1

a. Variable cost per unit:

RM
Direct Material 30.00
RM270,000/9,000
Direct Labour 15.00
RM135,000/9,000
Direct Expenses 5.00
RM45,000/9,000
Total 50.00

Total fixed cost per month:

RM
Production OH 120,050
Administration 80,030
Selling & Distribution 50,000
Total 250,080

b. i) BEP (units): BEP (RM)

= TFC
CM/unit

= RM250,080 = 1,563 units x RM210

RM210 - RM50

= 1,563 units. = RM328,230

ii) MOS = Sales units - BEP units

MOS = 9,000 – 1,563

MOS = 7,437 units

iii) Net profit = (RM210 x 9,000) - (RM50 x 9,000) – RM250,080

= RM1,189,920

c. New TFC = (RM250,080 + RM49,920 )

= RM300,000
 New BEP (units)
= TFC
CM/unit

= RM300,000
RM210 – RM50

= 1,875

New MOS (units) = Sales units - BEP units MOS (RM) = 13,125 x RM210
= 15,000 – 1,875 = RM2,756,250
= 13,125

New Net Profit = Px – bx - a

= (RM210 x 15,000 ) – (RM50 x 15,000) – RM300,000
= RM2,100,000

d. Net profit for multi-product.

Contribution CM x Sales units

Product Margin (CM) Sales units (RM)
Premium 70% x RM250
Phalaenopsis =RM175.00 80% x 15,000 = 12,000 2,100,000
Latex 60% x RM220
Phalaenopsis =RM132.00 15% x 15,000 = 2,250 297,000
55% x RM150
Mini Phalaenopsis =RM82.50 5% x 15,000 = 750 61,87
2,458,875
Less: Total fixed
cost 350,000
Net Profit 2,108,875

Alternative answer:

Contribution
Product Margin Sales Mix WACM
Premium
Phalaenopsis RM175.00 80% RM140.00
Latex
Phalaenopsis RM132.00 15% RM19.80
Mini
Phalaenopsis RM82.50 5% RM4.13
RM163.93
New Net Profit = (WACM x sales units) – TFC
= (RM163.93 x 15,000 ) – RM350,000
= RM2,458,875 – RM350,000
= RM2,108,875

The company should proceed with the plan to stop producing Satin Phalaenopsis
arrangements and replace it with three (3) new types of arrangements because the Net
Profit is higher by RM918,955 [RM2,108,875 – RM RM1,189,920]

e. Four (4) limitations of CVP Analysis

i. Variable costs and sales are unlikely to be linear because volume is not the only
factor which determines cost and volume changes.
ii. In practice, it is not always feasible to resolve all costs into their fixed and variable
elements.
iii. Total fixed costs will not remain constant indefinitely. Fixed costs will vary in the
long term.
iv. Analysis applied to the relevant range only.
v. Analysis applies only to a short-term time horizon.

Q2

a)

iii) Sales budget (in units and value)

Quarter 1 Quarter 2
Sales units 1,254 1,200
x) Selling price per unit 620 650
Sales revenue 777,480 780,000

ii) Production budget (in units)

Quarter 1 Quarter 2
Sales units 1,254 1,200
+) Closing stock 9,600 10,080
-) Opening stock (8,000) (9,600)
Production units 2,854 1,680
iii) Direct material usage and purchase budget (in units and value)

Quarter 1 Quarter 2
RESAK MERBAU RESAK MERBAU
Production units 2,854 1,680
X Material usage per unit 2 4 2 4
Total material usage 5,708 11,416 3,360 6,720
+) Closing stock 2,940 1,210 4,000 1,210
- ) Opening stock (3,000) (1,100) (2,940) (1,210)
Total material to be purchased 5,648 11,526 4,420 6,720
x) Purchase price per unit 25 12 28 14
Purchase cost 141,200 138,312 123,760 94,080

iv) Direct labour cost budget

Quarter 1 Quarter 2
Skilled Semi-skilled Skilled Semi-skilled
Production units 2,854 1,680
x) Hours required per unit 3 5 3 5
Total hours required 8,562 14,270 5,040 8,400
x) Rate per hour 10 8 10 8
Total labour cost 85,620 114,160 50,400 67,200

v) Production cost budget (for the first quarter only)

RM
Direct materials:
RESAK 5,708 units xRM25 142,700
MERBAU 11,416 units x RM12 136,992

Direct Labour:
Skilled 8,562 hours x RM10 85,620
Semi - skilled 14,270 hours x RM8 114,160

Production Overheads:
Variable RM3 x (8,562 hours + 14,270 hours) 68,496
Fixed 5,000
PRODUCTION COST 552,968
b) THREE (3) advantages of budgeting:
i) Budget act as a tool to communicate management objective and plans
throughout the organization.
ii) Budget assist manager in coordinating employees activities in line with
organization goals.
iii) Budget helps manager to allocate organization resources more efficiently.
iv) Budget provides benchmark to the management to evaluate the current operation
and performance of employees.
v) Budget assists management in planning and controlling expenditures and
activities taken to achieve organization objectives.
vi) Budget enables management to predict operating result and financial condition in
future period.