Accounting Business Reporting for Decision Making

CHAPTER 10 Cost–volume–profit analysis 451

10.31  LO2

Information for Melong Industries is provided below.

Average selling price per unit $ 10.00

Average variable costs per unit:

Cost per unit

Selling costs

5.00

1.40

Annual fixed costs:

Selling

Administration

240 000

380 000

After-tax profit target 126 000

Tax rate 30%

Required

a. Calculate the before-tax profit.

b. Calculate the number of units that need to be sold in 2017 to reach the after-tax profit target.

c. If the sales units in 2017 should be 25 per cent less than required to meet the after-tax profit

target, what will the after-tax profit actually be?

10.32  LO2

Chloe Enterprises operates a single-product entity. Data relating to the product for 2016 were as

follows.

Annual volume

Selling price per unit

Variable manufacturing cost per unit

Annual fixed manufacturing costs

Variable marketing and distribution costs per unit

Annual fixed non-manufacturing costs

$

32 000

60

28

120 000

12

360 000

units

Required

a. Calculate the break-even in both dollars and units for 2016.

b. Calculate the margin of safety in both units and sales dollars.

c. Calculate the profit achieved in 2016 given the annual volume of 32 000 units.

d. Changes in marketing strategy are planned for 2017. This would increase variable marketing

and distribution costs by $4 per unit, and reduce fixed non-manufacturing costs by $80 000

per year. Calculate the units that would need to be sold in 2017 to achieve the same profit as

in 2016.

e. Would you recommend the change? Explain.

10.33  LO2

Coconut Plantations Pty Ltd management plans to introduce detergents to their product range in

2018. They have provided the following information relating to their planned activities.

Candles Soaps Detergents

Sales mix (250 000 units)

Selling price

Variable cost/unit

Total fixed costs = $402 800

75 000

$28

18

50 000

$45

27

125 000

$20

12

Required

a. Calculate the break-even point in total units and units per product based on the 2018 data.

b. Calculate the before tax profit (loss) that would be achieved in 2018 based on the above data.

c. Management is concerned about increasing competition for some of its products, and wants

to increase its sales of Soaps relative to Detergents. The initiative would increase annual fixed

costs by $50 000 and alter the sales mix to 30 per cent for Candles, 30 per cent for Soaps and

40 per cent for Detergents. On the available data, would you recommend the initiative?