Question

Q 1 In your opinion, how analyzing cost behaviour is useful?

Discuss why contribution margin and break-even can be used by managers?

Answer the two questions using graphs in your analysis.

Q 2      Taher Compagny sells product A for $70 each. The estimated income statement for 2017 was as following:

Sales                                                          $4,970,000

Variable costs                                           (2,000,000)

Contribution Margin                             2,970,000

Fixed costs                                                (1,500,000)

Pretax profit                                     $   1,470,000

a.   Compute the contribution margin per unit and the number of units that must be sold to break even.

b.   Compute the contribution margin ratio and the breakeven point in total revenue.

Q 3      Ibrahim Corporation produces and sells a product A with a price of $30 per unit and variable costs of $12 per unit. Total fixed costs are $7,000.

a.   Calculate Ibrahim Compagny’s contribution margin per unit.

b.   How many units must Ibrahim Compagny sell to break even?

c.   You are manager in Ibrahim Corporation. Explain what assumptions and limitations you should consider when using CVP analysis?

Q 4 Abdulkarim Company is using job costing system. The allocation base for overhead is number of machine hours. The company uses normal costing to compute the overhead allocation rate.

The following data are available for 2017 year:

Estimated total overhead cost                                  $270,000

Estimated total number of machine-hours                200,000

Actual total overhead cost                                       $290,000

Actual total number of machine-hours                      220,000

            Job 630 used 14, 000 machine hours.

            The company had job 630 and other jobs during the year.

                               

a.   Calculate the estimated overhead allocation rate.

b.   Compute the overhead allocated to job 630.

c.   Calculate total allocated overhead and analyze the value of allocated overhead.

d.   Explain the Concept of Job Costing?

Answer 1

1. Computation of contribution margin per unit

Number of units sold = $4,970,000 / 70 = 71,000 units

Contribution margin per unit = Total Contribution / Number of units sold

= 2,970,000 / 71,000 = $41.83 per unit

Break even number of units = Total Fixed costs / Contribution margin per unit

= 1,500,000 / 41.83 = $35,860 units. approx.

b. Contribution margin ratio = Total Contribution / total sales

= 2970000 / 4970000 = 59.76%

Break even sales = 35,860 x $70 = $2,510,200