Solution 1.

(High and Low)

Variable cost per unit = Y2 Y1/ X2 x1

= (57500-22500)/ (95000-25000)

= 35,000/70,000 = 0.50 per hour.

RM

At 95,000 hour, TOTAL Cost = 57,500

Variable cost (95,000 x 0.50) = 47,500
-----------
FIXED COST RM10,000
========

If Hours = 120,000
Variable cost = 120,000 x 0.50 = RM60,000
Fixed Cost = RM10,000
-----------------
Estimated Total Cost RM70,000
==========

Solution 2. (High and Low)

Vc = (16240 14320) / (10300 -7900) = 1920/2400

= 0.80 per hour

Thus at 10,300 hour, Total Cost = RM16,240

Variable Cost (10300 x 0.80) = RM8,240
----------------
Fixed Cost = RM8,000
==========
Therefore if Hours = 15000 hrs
Variable cost (15000 x 0.80) = RM12,000
Fixed Cost = RM8,000
--------------
Total cost = RM20,000
=========

Solution 3. Scatter Graph.

Month X Y
Jan 4000 7250
Feb 6500 8250
 Mar 8000 10500
April 10500 12000
May 12000 13500
Jun 9000 10750
July 7500 9750

Total
Cost

No of Guest days

Solution 4.

Y =a + bx

b = n(xy) (x) (y)

n (x) - (x) (x)

b = (15322800 14511240) /1153704 1077444

b = 811560/76260
= 10.64

_ _
A= y b (x )

= (13980/6) (10.64) (1038/6)

= 489.88

Thus Y = 489.88 + 10.64 x

Question 5.
You are given the following data about a factory and cost of production over the past 5 months.
There is a high degree of correlation between output and cost, and so it is decided to calculate first, total fixed
cost and variable cost per unit of output using both the H & L method and the least squares method.

Months. Output(000 units) Costs (RM000)

X Y
Jan 24 102
Feb 18 90
Mar 28 113
Apr 20 88
May 30 122

You are also required to calculate a formulae to determine the expected level of cost for any given volume of
output using H& L and Least Square Methods.
If the output increase to 35000 units what is the total estimated cost using both method.
Calculate the value of R ? What does it shows you.

Solution 5.

Solution to Q5
High and Low Method
b = 122K 90K/ 30K-18K
b = 32K/12K
b =2.67
FC = 90K (18 x 2.667)
FC = 42,000
When x = 35,000
TC = 42K + (35K x 2.67)
= 135,450

REGRESSION METHOD
Months.
Months. X000 Y000 XY X =a+bx (Y -) (Y-)
Jan 24 102 2448 576 103.0074 1.01481 1
Feb 18 90 1620 324 86.15938 14.7504 169
Mar 28 113 3164 784 114.2394 1.53606 100
Apr 20 88 1760 400 91.77538 14.2535 225
May 30 122 3660 900 119.8554 4.59939 361
(Y -)
n=5 X = y= XY = X = = (Y-) =
5 120 515 12652 2984 36.1541 856
mean x = mean y =
24 103

y = a + b(x)
 b = n(XY) - XY / n(X) - X Y
b = (5x 12652)-(120X515)/ (5x2984) - (120 x 120) 35615.4 2.808
divide
b= 1460 by 520 35615.4 2.808
b= 2.807692 35615.4 2.808
35615.4 2.808
a = -(b*) 35615.4 2.808
a= 35615.38
Equation= 35615.38 + 2.808(x)

Using
Regression,
when x =
35000
Y = Total Cost
= 35615 +
2.808(35,000)
= 133,895

R = 1 less {(Y -) divide by (Y-)}

R = 0.957764

R square is
measurement
of goodness
of fit of the
independent
variable on
dependent
variable
It explain the
extend of
variation in Y
due to
variation in X

SOLUTION 5(b)
STUDENTSASSIGNMENT

Solution 6
a B/E (RM) = Fixed Cost/ Contribution sales ratio

900,000 = 1,285,714
350/500

b B/E (Units) = Fixed Cost/ Contribution per unit

Contribution per unit = RM500 RM150 = RM350

 = 900,000/ 350

= 2572 units.

c Units sold = 5,000 units

Selling Price = RM500
Variable cost per unit = Rm150
Contribution per unit = RM350

Contribution Margin = Rm350 x 5000 = 1,750,000

Less Fixed Cost = 900,000
PROFIT 800,000
======

d Margin of Safety = Actual sales in units B/E in units

= 5000 2572
= 2428
=====

e Sales = (Fixed cost + 100,000)/ Contribution per unit

= (900,000 + 100,000) / 350

= 2857 sets

f Let Sales in unit = X

X = FC + (5% x 500X)/ Contribution per unit

X = 900,000 + 0.05(500X)/ 350
350X = 900,000 + 25X

X = 900,000
350-25

= 2769 units.
============

g New Fixed Cost = 900,000 + 100,000 = 1.0 million

B/E (RM) = FC / Contribution sales ratio

= 1.0 million
350/500

= 1,428,714.
==========

Solution 7 Break even

a) BE (RM) = Fixed Cost / (Contribution sales ratio)

= Contibution sales ration = 45m 25m/ 45 m= 0.4444

= 15,000,000/ 0.4444
 = 33,750,033
==========

b) BE (units) = BE(RM)/ selling price.

Selling Price = 45,000,000/50,000 = RM900.

BE (units) = 33,750,033 / 900 = 37,500 units.

===========

c) Margin of safety Ratio = Budget Sales Break even sales

Budget sales

= (50000 37500)/ 50,000 x 100%

= 0. 25
======

d) Level of sales in RM to achieve RM1 million Profit

Sales in RM = (Fixed Cost x RM1.0m) / contribution sales ratio.

= (RM15.0 million + RM1.0 million) / 0.4444

= RM16.0 m/ 0.4444
= RM36.0million
==============
e) New Fixed Cost = RM15,000,000 + RM500,000 = RM15.5 million
New Variable Cost = 25,000,000 + 15% of VC)
50,000
= 500 + (0.15 x 500)
= 575.00
New contribution sales ratio = (900 -575)/ 900
= 0.3611

New BE (RM) = RM15.5 million/ 0.3611

= RM42.9 million
================

Solution 8
Product X Product Y Total
Sales (unit) 20,000 40,000 60,000
Sales (RM) 120,000 80,000 200,000

Selling Price 6.00 2.00

Variable cost 4.00 1.00
Contribution per unit 2.00 1.00
Contribution Margin
X = 2 x 20,000 40,000
Y = 1 x 40,000 40,000 80,000

(a) Contribution sales mix Ratio = Contribution Mix/ Sales Mix

= 80,000/ 200,000 = 0.40

B/E (RM) = Fixed Cost/ Contribution mix/sales ratio

= 60,000/ 0.4
= RM150,000
==========
Profit = Rm80,000 Rm60,000 = RM20,000

(b) Product Mix = 50 % each

Product X Product Y Total
Sales (unit) 30,000 30,000 60,000
Selling Price 6.00 2.00
Sales 180,000 60,000 240,000
Contribution per unit 2.00 1.00
Contribution margin
X = 2 x 30000 60,000
Y = 1 x 30,000 30,000 90,000

Contribution sales mix ratio = 60,000

90,000/240,00
= 60,000
0.375
= 160,000
======
New Profit = 90,000 60,000 = RM30,000
==========

c Observation.
At the old sales mix, the profit will be RM20,000 (80,000 60,000).
At the new sales mix, the profit is RM30,000 (90,000 60,000)
In other words, the company will maximize profit if it decides to produce more of product which will offer
higher contribution per unit.

d) Weighted Average Contribution per unit = 90,000/60000 units=RM1.5 0

Thus B/E (units) = Fixed Cost /WACU = RM60,000 / 1.5 =40,000 units.
BE (units) for each product = 40,000 units x 30,000/60,000 = 20,000 units.

Question 9 Manira Sdn Bhd. is a Malaysian company established in 2014. The company has the following
data for one of its manufactured products called XY.

Income from Budget Sales RM640,000

Fixed costs:
Manufacturing RM120,000
Selling and Administration RM55,000
Unit variable costs:
 Manufacturing RM16
Selling and Administration RM20
Contribution margin ratio 0.4

Required:

a) What is the breakeven point in Ringgit Malaysia?

b) Calculate the selling price per unit for ABC product
c) Determine the unit contribution margin.
d) What is the breakeven point in units
e) Calculate the margin of safety in Ringgit Malaysia.
f) Determine the number of units to sale if Manira Bhd intends
to have RM20,000 profits.
g) Based on Sales Contribution Margin format (Marginal Costing) what is the profit
from the above budget ales.

Solution 9 Manira
(a) B/E (RM) = FC = 180,000/ 0.4
Contribution sales Ratio
= 450,000
========
(b) Selling Price - (variable cost) = 0.40
Selling Price

Selling price 36 = 0.4(Selling Price)

Selling Price = 36/ 0.6

= RM60
=====
(c ) Unit Contribution Margin = S/P V/C
= 60 -36 = RM24.00
========

(d) BE (Units) = FC/ Contribution per unit

= 180,000/ 24 = 7500 units

(e) MOS = 640,000 -450,000 = RM190,000

(f) Units to be sold = (FC + 25,000) / CPU = 180,000 + 25,000/ 24

= 8542 units units

===========

(g) Sales RM640,000

Variable Cost (36 x 10,667) RM384012
Contribution Margin RM255,988
Less Fixed Cost RM 180,000
Profit RM 75,988
========
Answer to Q10
a)
Total sales = 550,000
Total contribution is = 190,000
B/E (RM) = fixed cost Total contribution/total sales
= (75,000 + 50,000) 190,000/550,000
= 361,843.
=========

b) Determine of sales mix

product M product N
% of M = 100,000/550,000 18.18%

% of N = 450,000/550,000 81.18%

Thus B/E units for M

= B/E (RM) for M * % of M selling price of M

= 361,843 * 0.1818 10 = 6,579 units.

Thus B/E units for N

= 361,843 * .8181 15 = 19737 units.

c) Using weighted average contribution margin.

M N Total

Selling price RM10 RM15

Variable cost RM6 RM10
Contribution per unit RM4 RM5
No of Units 10,000 30,000 40,000

Contribution 40,000 150,000 190,000

Weighted average contribution margin

= 190,000/ 40,000
= RM4.75

New fixed cost = 75,000 + (50,000 X 1.05) = 127,500

Thus Sales Mix Break Even in Units = 127,500 4.75

= 26843 units.

Thus M = 26843 x 10,000/40000=6711

Thus N = 26843 x 30000/40000 = 20132

Question 11
An electrical manufacturing company has been formed to produce local electrical bulbs for the local housing
industry. Three different class of electrical bulbs are identified with their respective cost structure as follows.

Bulb F Bulb G Bulb H Total (RM)

Actual Production/ Sales in units 14,000 16,000 20,000

Selling Price in RM 30.00 34.00 38.00

Total Contribution 1,110,000

Fixed Cost Production 500,000

Fixed Cost Selling and Administration 343,600

You have been employed to assist the sales manager in the costing department and are required to calculate the
following.
a) Total Break Even points in units for the whole firm.
b) Break Even point in sales (RM) for each product sold above.
c) What is the percentage of sales you can afford to reduce to ensure that you would sustain minimum profit.

d) Assuming that the fixed production cost increase by RM50,000, calculate the new Total B/E (RM) and Net Profit
before tax from above the financial information.
e) What is the importance of DOL in the CPV analysis.

SOLUTION TO Q11

a) B/E in units for Mixed = Total FC

Total Contibution/total sales in units

= 500,000+343,600
1110k/50k
=38,000 units

b) B/E (RM) for each Product

Bulb F = 38,000 x 14/50 x RM30 = RM319,000

Bulb G = 38,000 x 16/50 x RM34 = RM413,440

Bulb H = 38,000 x 20/50 x RM38 = RM577,600

c) This is to calculate the Margin of safety

Budget sales B/E sales x 100%
Budget sales

= (50,000 38,000) x 100% = 24 %.

 50,000

d) New Fixed production cost = RM500,000 = RM50,000 = M550,000

New B/E (RM) = 893.6
1110/1724
= RM1,387,897

e) Importance of DOL in CPV

A company operating leverage refers to the relative amount of fixed and variable cost that make up its
total cost. Companies with high operating leverage have relatively more fixed cost and relatively fewer variable
cost.
Operating leverage helps manages to understand their risk if volume decreases due to a recession, or
other changes in the market place. When sales decrease, the total contribution margin will drop significantly
because each sales dollar contains a high percentage of contribution margin. The high fixed cost will remain,
thus these companies can easily turn from profit to loss if sales volume declines.
A companys operating leverage factor tell how responsive a company operating income would react to
a change in sales volume . The greater the dol factors, the greater the impact in sales volume has on operating
income.

Question 12
A new company has just been set up with the objective of manufacturing and selling product X, Y and Z .
A budget also incorporates the break even planning for the mixed product.
You have just been appointed as an assistant management accounting manager and is being asked to assist to
provide solutions to the few questions based on the following financial data.

Prod X Prod Y Prod Z Total (RM)

Budgeted Production/ Sales in units 12,000 20,000 18,000

Percentage to Total Sales (RM) 0.2 0.5 0.3

Ratio of Total Contribution to Total 0.4
Sales

Ratio to Total contribution 0.25 0.50 0.25

Total Contribution 1,500,000

Fixed Cost manufacturing 650,000

Fixed Cost Selling and Administration 325,000

a) What is the Total B/E in units and in RM

b) What is the individual B/E (units)
c) What is the selling price per unit for each product.
d) If the fixed manufacturing cost increase by 10 % what is the firm profit and new total B/E in RM .

Solution to Q12
 a) Total B/E in units = Fixed cost/ WACpu
WACpu = RM1,500,000/50000 units = RM30

Total B/E in units = 650,000 + 325,000 / RM30

= 32,500 units

Total B/E in RM = Fixed Cost / Total contribution to Total sales

= 975,000/0.4
= 2,437,500

b) Individual product B/E in units

Product X = 32500 x 12000/50000 = 7800 units
Product Y = 32500 x 20,000/50000 = 13,000 units
Product Z = 32500 x 18000/50000 = 11,700 units

c) Total B/E in RM = RM2,437,500

B/E (RM) for X = 2437500 x 0.2 = 487,500
Selling Price for X = 487500/7800 = RM62.5

B/E (RM) for Y = 2437500 x 0.5 = 1218,750

Selling price for Y = 1218750/13000 = RM93.75

B/E (RM) for Z = 2437500 x 0.3 = 731,250

Selling Price for Z = 731,259/11,700= RM62.50

d) Contribution RM1500,000
Fixed Cost
Manufacturing (650,000 x 1.1) (715,000)
Selling and Administration (325,000)

Net Profit RM460,000

New Total B/E = (715000 + 325,000)/ 0.4

= RM2,600,000

Solution 13

E 7-60B

1. Sales price per unit............................................. $20.00

Variable cost per unit......................................... $17.00
Contribution margin per unit............................. $ 3.00

$3.00
Contribution margin ratio = = .15
$20.00
= 15%
 Sales Revenue (130,000 $20.00) $ 2,600,000
Less: Variable expenses (130,000 $17.00) <2,210,000>
Contribution margin.. $ 390,000

2. Sales volume (units) 160,000

Unit contribution margin x $3.00
Contribution margin $480,000
Less: Fixed expenses <290,100>
Operating income. $189,900

3. Sales revenue $4,000,000

Contribution margin ratio.. x 15%
Contribution margin $600,000
Less: fixed expenses. <290,100>
Operating income. $ 309,900

4. $290,100 96,700
B/E sales in units = =
$3.00 units

$290,100
B/E sales in dollars = = $1,934,000
15%

5. $290,100 + $260,100
= 183,400 units
$3.00

(continued) E 7-60B

6. Original contribution margin per unit.................. $3.00

Less: Increase in Direct labor cost per unit ($7.00 x
10%).......................................................... $0.70
New contribution margin per unit... $2.30

Original fixed expenses. $290,100

Plus: Increase in fixed expenses.. 22,500
New fixed expenses $312,600

$312,600 135,914
New breakeven in units = =
$2.30 Units

7. Contribution margin (from part 1)... $390,000

Less: Fixed expenses... <290,100>
Operating income $99,900

$390,000
Operating Leverage factor = = 3.90
$99,900

8. Increase in volume.. 7%
Operating leverage factor.. 3.90
New fixed expenses 27.3%
9. Margin of safety = Sales Sales at breakeven
$2,600,000 $1,934,000
=
(from part 1) (from part 4)
= $666,000
Margin of safety as a percentage 666,000
= = .256 = 25.6%
2,600,000

10. 1 GB 2 GB Total
Sales price.. $20 $45
Variable cost.. <17> <28>
Contribution margin. $ 3 $17
Sales mix. 6 1 7
Contribution margin. $18 $17 $35
Weighted-average contribution margin per (35)
unit (7) $5.00

$290,100 + 260,100 110,040 units

Sales in units = =
5

Smaller 1 GB: 110,040 6/7 94,320 units

Larger 2 GB: 110,040 1/7. 15,720 units

The target profit volume is lower than before (Req. 5) because now the company is selling a product with
a much higher unit contribution margin.

Q14
Kelseys Ice Cream sold 9,000 servings of ice cream during June for RM3 per serving. Kelsey purchases
the ice cream in large tub from the Blue Bell Ice Cream Company. Each tub costs Ke;sey RM15 and has
enough ice cream to fill 30 ice cream cones. The ice cream cone size is equivalent to one serving. Kelsey
purchases the ice cream cones for RM0.05 each from a local warehouse club. Kelseys is located in a local
strip mall, and she pays RM1,800 a month to lease the space. Kelsey expenses RM250 a month for the
depreciation of the companys furniture and equipment. During June, Kelsey incurred an additional
RM2,500 of other operating expenses (75% of these were fixed costs).
You are required to prepare:
1. Kelseys June income statement using a traditional format.
2. Kelseys June statement using a contribution margin format.

Solution 15
Req. 1

Kelseys Ice Cream

Income Statement(Traditional approach)
For the Month Ended June 30
Sales revenue (9,000 $3.00) $27,000
Cost of goods sold (9,000 $0.55*) (4,950)
Gross profit $22,050
Operating expenses:
Lease expense $1,800
Depreciation expense 250
Other operating expenses 2,500
Total operating expenses (4,550)
Operating income $17,500

*$15 per tub 30 servings = $0.50 for ice cream + $0.05 per
ice cream cone = $0.55

OR (9000/30 x RM15)/ 9000 + 0.05 = RM0.55

Req. 2

Kelseys Ice Cream

Contribution Margin Income Statement
For the Month Ended June 30
Sales revenue (9,000 $3.00) $27,000
Variable expenses
Cost of goods sold (9,000 0.55*) $4,950
Other variable operating expenses 625a
Total variable expense (5,575)
Contribution margin $21,425
Fixed expenses:
Lease expense $1,800
Depreciation expense 250
Other fixed operating expenses 1,875b
Total fixed expenses (3,925)
Operating income $17,500

a
$2,500 25% variable = $625
b
$2,500 75% fixed = $1,875

Solution to Q16.
(25-35 min.) P 6-76A

Req. 1
January February
Absorption Variable Absorption Variable
Costing Costing Costing Costing
Total product cost.... $4.35 $4.00 $4.50 $4.00

(continued) P 6-76A

Req. 2a
Marcus Meal
Income Statement (Absorption Costing)
Month Ended January 31
Jan. 31 Feb. 28
Sales revenue $12,600 $14,400
Cost of goods sold (6,090) (7,110)
Gross profit 6,510 7,290
Operating expenses (1,800) (2,000)
Operating income $ 4,710 $ 5,290

Req. 2b
Marcus Meal
 Income Statement (Variable Costing)
Month Ended January 31
January 31 February 28
Sales revenue $12,600 $14,400
Variable expenses:
Variable cost of goods sold 5,600 6,400
Sales commission expense 1,400 (7,000) 1,600 (8,000)
Contribution margin 5,600 6,400
Fixed expenses:
Fixed manufacturing overhead 700 700
Fixed marketing and administrative
expenses 400 (1,100) 400 (1,100)
Operating income $4,500 $5,300

Req. 3
In January, absorption costing operating income exceeds variable costing
income. This is because units produced were greater than units sold.
Absorption costing defers some of Januarys fixed manufacturing overhead costs
in the units of ending inventory. These costs will not be expensed until those
units are sold. Deferring these fixed manufacturing overhead costs to the future
increases Januarys absorption costing income.

In February, absorption costing operating income is less than variable costing

operating income. This is because units produced were less than units sold for
the month.
As inventory declines, as was the case this February, Januarys fixed
manufacturing overhead costs that absorption costing assigned to that inventory
are expensed in February. This decreases Februarys absorption costing income.

Students should be able to provide responses similar to those above. The

additional explanation below is included for instructors who wish to provide a
more detailed explanation of the source of the difference between absorption and
variable costing incomes.
No additional explanation provided.