Traditional costing methods - Cost–volume–profit analysis: แบบฝึกหัด

Which of the following is an advantage of using Cost–volume–profit (CVP) analysis for management decision-making?

What is defined as the extent to which the current level of sales exceeds the break-even point?

Explain one limitation of using Cost–volume–profit (CVP) analysis for a business that produces multiple products with different contribution margins.

Identify two non-financial factors that a management team should consider when using cost–volume–profit data to decide whether to close a specific production line.

Z-Tech Ltd produces a single component for the automotive industry. The following information is available for the month of October:

Selling price per unit: \(\$45\)
Variable cost per unit: \(\$27\)
Total monthly fixed costs: \(\$54,000\)

The company is considering an expansion that would increase monthly fixed costs by \(\$9,000\) but would reduce the variable cost per unit to \(\$24\).

(a) Calculate the current break-even point in units for Z-Tech Ltd.
(b) Calculate the contribution to sales (C/S) ratio under the new expansion proposal.
(c) State one limitation of cost-volume-profit (CVP) analysis.

A local manufacturer, Decor Ltd, provides the following budgeted data regarding its production for the next quarter:

Budgeted sales: \(12,000\) units
Unit selling price: \(\$80\)
Direct materials: \(\$25\) per unit
Direct labour: \(\$15\) per unit
Variable overheads: \(\$10\) per unit
Total fixed overheads: \(\$180,000\)

The directors are evaluating the margin of safety and the impact of a potential price change.

(a) Calculate the contribution per unit.
(b) Calculate the margin of safety as a percentage of budgeted sales.
(c) Calculate the number of units Decor Ltd must sell to achieve a target profit of \(\$210,000\).
(d) Explain one non-financial factor Decor Ltd should consider before increasing its selling price to improve profitability.