Reference no: EM132587321
Peter Parker is carrying the business of selling fountain pen. The selling price of its pen is RM30/unit, whereas the variable cost is RM12/unit. The fixed expense is estimated to be RM216,000 per month. He expects to sell 15,000 pens per month.
Peter Parker hears about the importance of break-even analysis, but he is not certain about its usefulness. Therefore, he engaged you to advise him on the following matters:
Required:
Question (a) What is the monthly break-even point in unit sales and in RM sales? Explain to Peter Parker the meaning of break-even point with your calculation.
Question (b) If he wants to attain a target profit of RM90,000 per month, how many units of pen he has to sell?
Question (c) Prepare a contribution format monthly income statement at the target sales level for attaining target profit of RM90,000.
Question (d) By using the original sales of 15,000 units, compute Peter Parker's margin of safety in units and percentage. Then advise Peter on your findings.
Question (e) If variable cost increases to RM15/unit due to higher labour cost and fixed cost increases to RM250,000, what is the new break-even point?
Question (f) Considering the situation (e) above where all the costs have increased, but Peter Parker's sales remain unchanged at the level of 15,000 units @ RM30/unit, what can you conclude?
Question (g) List the assumptions underlying the cost-volume-profit analysis.
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