QUESTION ONE

Angel ltd produces two products A and B. these products are produced and sold in a constant proportion such that for every 3 units of A produced / sold 2 units of B are also produced / sold. Each unit of A is sold at T.shs. 100 and has variable costs of T.shs 70 while each unit of B is sold at T.shs 50 and has variable costs of T.shs 30.
Fixed costs amount at T.shs 39,000
Required:

  1. Determine the number of units to be sold so as to break even, the composite contribution sales revenue at BEP.
  2. Suppose the company’s target to earn a profit before tax of T.shs 12,000 then how many units should have the company produced.

  • Updated: 02 Jul 24
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  • Attempts: 2846
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  • Correct: 834

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BEP of A in Units:
QUESTION TWO

Angel and company is engaged in providing and marketing a standard clearing services. The summarized result for the past two months, recall the following:

October November
Sales (units of service) 200,000 300,000
Sales 5,000,000 7,500,000
Operating profit 1,000,000 2,200,000

There was no price change any description during these two months.
Required:

  1. Deduce the BEP, units of service
  2. If 'y = a + bx' represents the total revenue function, Determine the value of 'a', 'b' and 'x' at break even point.

  • Updated: 02 Jul 24
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  • Attempts: 794
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  • Correct: 264

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PV-ratio (in decimals):
QUESTION THREE

A hotel group prepares accounts on quarterly basis. The senior manager was reviewing the performance of the Hotel and making plans for the next year based on some actual results and some forecasts to the end of this year.

Quarter Sales (T.shs) Profit (T.shs)
1 400,000 (280,000)
2 1,200,000 360,000
3 1,600,000 680,000
4 800,000 40,000
Total 4,000,000 800,000

The total estimated number of visitors this year is 50,000. The result follow a regular pattern, there being no unexpected cost fluctuations beyond the seasonal trading patterns exhibited. The manager intends to incorporate in his plans for the next year an anticipated increase in unit variable cost of 10% and a profit target for hotel of T.shs 1,000,000
Required:

  1. Determine the total variable and total fixed costs of the hotel for the year. Tabulate the provisional annual result for this year in total, showing variable and fixed cost separately; show also the revenue and cost per visitor.
  2. Part II
    1. If there is no increase in visitors next year what will be the required revenue rate per hotel visitor to meet the profit target.
    2. If the required revenue rate per visitor is not raised above this year level, how many visitors will be required to meet the profit target.
  3. Outline and briefly discuss the assumptions that are contained within the Break Even Analysis and assess if they limit its usefulness.

  • Updated: 02 Jul 24
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  • Attempts: 443
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  • Correct: 189

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Total Variable Cost:
QUESTION FOUR

Z ltd manufactures and sales three products with the following selling prices and variable cost

Product A Product B Product C
SP 300 245 400
VC 120 167 260

The company is considering expenditure on advertising and promotion of a product A. It is hoped that such expenditure, together with reduction in the selling price of the product would increase sales. Existing annual sales volume of the three products is

Product A 460,000 units
Product B 1,000,000 units
Product C 380,000 units

If T.shs 6 million per annum was to be invested in advertising and sales promotion, sales of product A at reduced selling price expected to be:
590,000 units at T.shs 275 per unit
Or
650,000 units at T.shs 255 per unit
Annual fixed costs are currently T.shs 171 million per annum.
Required:

  1. Calculate the BEP (T.shs) of the business
  2. Advice the management of Z. ltd as to whether the expenditure on advertising and promotion, together with selling price reduction, should be introduced in product A.
  3. Calculate the required unit sales of product A, at a selling price of T.shs 275 per unit, in order to justify the expenditure on advertising and promotion.
  4. Explain the term margin of safety with particular reference to the circumstances of Z. ltd.

  • Updated: 02 Jul 24
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  • Attempts: 236
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  • Correct: 40

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Break Even Point (Shs):
QUESTION FIVE

Mayunga Plc manufacture one standard product which sales at T.shs 100. For the 6 months presented data, You are required to compute the following:

  1. Fixed cost
  2. Variable cost per unit
  3. The P/V ratio
  4. The BEP in Shillings
  5. Margin of safety
Month Sales (units) Profit / Loss
Nov 30,000 400,000
Dec 35,000 600,000
Jan 15,000 (200,000)
Feb 24,000 160,000
March 26,000 240,000
April 18,000 (80,000)

  • Updated: 02 Jul 24
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  • Attempts: 224
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  • Correct: 45

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Fixed Cost:
QUESTION SIX

Michelle Company produces three Products. In order to plan for the coming year, the company generated detailed information in relation to sales forecasts. Among them was the following data:

Products NGANO MTAMA ULEZI
Planned sales price (T.shs) 7,500 8,000 9,000
Sales value budget (T.shs) 42,000,000 11,200,000 27,000,000
Anticipated margin of safety ratio 36% 40% 24%
Fixed factory cost ‘budget’ T.shs 10,752,000 1,680,000 6,156,000

Required:

  1. Based on management belief that fixed factory cost were directly traceable to the individual products, indicate the following for each product:
    1. Sales value budget and related units at breakeven points.
    2. Unit variable costs.
    3. Unit contribution margin.
  2. Management’s belief about anticipated fixed factory costs being directly traceable to the individual product was wrong. The truth is that the three products share factory facilities that influence fixed costs equal to T.shs 18,588,000 which are allocated to them.
  3. Required:
    1. Determine the sales mix for the three products which will earn a T.shs 1,852,880 profit in the coming year
    2. What will be the margin of safety at the sales level that will earn the desired profit above?

  • Updated: 02 Jul 24
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  • Attempts: 134
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  • Correct: 39

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Break Even Sales of Ngano:
QUESTION SEVEN

Michelle Ltd produces and sales the following two products throughout the year in a constant mix:

Korosho Karanga
Variable cost per T.shs of sales 0.45 0.60
Fixed costs (T.shs) 1,212,000 per period

The management of Michelle has stated that total sales revenue will reach a maximum of T.shs 4,000,000 and is generated by two products in the following proportions:

Korosho Karanga
Sales mix 70% 30%

Required

  1. Calculate the break even sales revenue per period, based on the sales mix assumed above.
  2. Of the fixed cost, T.shs 455,000 are attributable to Korosho, Calculate the sales revenue required on Korosho in order to recover the attributable fixed costs and provide a net contribution of T.shs 700,000 towards general fixed cost and profit.

  • Updated: 02 Jul 24
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  • Attempts: 24
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  • Correct: 6

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Break Even Sales:
QUESTION EIGHT

Makojo Company has an opening stock of 6,000 units of output. The production planned for the current period is 24,000 units and expected sales for the current period amount to 28,000 units. The selling price per unit of output is TZS 1,000. Variable cost per unit is expected to be TZS 600 per unit while it was only TZS 500 per unit during the previous period.

Required:
Calculate the Break-Even volume for the current period if the total fixed costs for the current period is TZS 8,600,000.

  1. Assume that the first In first out (FIFO) system is followed.
  2. Assume that the Last in first out (LIFO) system is followed.

  • Updated: 02 Jul 24
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  • Attempts: 26
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  • Correct: 4

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Break Even Point (units) under FIFO:
QUESTION NINE

Calculate from the following data:
(i) The Sales Revenue at which the business breaks even and (ii) The percentage capacity at which it breaks even.

Budget for the year 2021
based on 100%
capacity (TZS)
Estimated shutdown
expenditure (TZS)
Direct labour 2,100,000
Direct materials 2,400,000
Work expenses 1,850,000 930,000
Selling and distribution expenses 610,000 401,000
Adminnistration expenses 300,000 205,000
Net sales 8,500,000

  • Updated: 02 Jul 24
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  • Attempts: 33
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  • Correct: 5

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Contribution Margin Sales Ratio (in decimals):
QUESTION TEN

PAMBA Ltd. and KATANI Ltd. are two manufacturing companies which intends to merge this year. The following are some of the operating information:

PAMBA Ltd. (shs) KATANI Ltd. (shs)
Capacity utilization 80% 50%
Sales 64,800,000 36,000,000
Variable costs 46,800,000 27,000,000
Fixed costs 9,600,000 6,000,000

Required:

  1. Calculate the break even sales of the merged company and the capacity utilization at that stage.
  2. Calculate the profitability of the merged company at 70% capacity utilization.
  3. Calculate the sales turnover of the merged company in order to earn a profit of shs 9,000,000/=.
  4. When the merged company is working at the capacity to earn a profit of shs 9,000,000/=, what percentage increase in selling price is requied to sustain the increase of 5% in fixed overheads?

  • Updated: 02 Jul 24
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  • Attempts: 51
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  • Correct: 3

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Contribution Margin Sales Ratio:
QUESTION ELEVEN

If Total sales is T.shs 13,500,000/= and Margin of Safety Ratio is changed from 30 per cent to 60 per cent. By how much will the profitability be affected taking 20 per cent PV Ratio?


  • Updated: 02 Jul 24
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  • Attempts: 48
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  • Correct: 6

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Profit Changes by:
QUESTION TWELVE

Myamongo Manufacturing company made a 10% profit on sales of 1 million in the last trading year. The composition of its costs was direct labour 25%, direct material 60% and fixed overhead 15%.

The general manager has drawn your attention to the fact that, although the sales were just below the forecast, the profit was very much lower than expected.

Your initial investigation shows that significant difference appears to be caused by the direct labour cost. The company uses marginal costing technique to price its products. In all price quotations, direct labour was trated as variable cost directly related to the volume of output. However, the review indicates that, the direct labour cost showed little change when output increased for any reason.

You are requied to:
State the sales value at BEP and the margin of safety when the direct labour are treated as
(i) Variable cost
(ii) Fixed cost


  • Updated: 02 Jul 24
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  • Attempts: 69
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  • Correct: 6

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(i) Break Even Sales:
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