Tutorial Chapter 1 (CVP- Analysis)
Sharul Nizam Bin Akilayni
700615

a) Product’s contribution margin ratio = 20 100% * 8 40% 12 60% | Break-Even Point in RM = Fixed expenses CM per unit = 180000 60% = RM 300000

b)

Unit = 375000/20 Variable Expenses = 18750 x 8 = 18750 Unit = 150,000 Net income will increase by RM 45,000.

c) i. Degree of operating leverage = Contribution margin Net operating income = 240,000 60,000 = 4 ii. With an operating leverage of 4, if the president expect that sales to increase by 20%, net operating income would increase by 80%.

A 20% increase in sales would increase their product sales from the current level of 20000 to 24000. Look at the contribution margin income statement and notice that income increased from RM60,000 to RM108,000. That $48,000 increase in net income is a 80% increase.

d)

10% reduction in the selling price = 20 - (10% x 20) = RM 18 per unit Sales = 24000 x 18 = Rm 432000 Variable expenses = 24000 x 8 = Rm 192000 Fixed expenses = 50000 + (30000 + 30000) + 100000 = Rm 210000 I’m not recommend that the company should do as the sales manager suggest. This is because, their net operating income will decrease by Rm 6000 compare to the last year income. e)
Margin of Safety in Units = Expected sales in units – Breakeven sales in units
Margin of Safety in Dollars = Margin of safety in units x Sale price per unit
The margin of safety in units is expressed mathematically by subtracting Breakeven Sales in units from Expected sales in units. The margin of safety in dollars is expressed by multiplying the Margin of Safety in Units by the Sales price per unit.

The margin of safety is the excess of expected sales over breakeven sales. This is the “cushion” or drop in sales the company can absorb without incurring a loss. The margin of safety is used to valuate the risk of current operations as well as the risk of new plans.