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QB1501 – Introduction to Accounting
Management Accounting – Tutorial Question Week 8

Q1. The amount by which an item contributes towards covering fixed cost and providing
for profit is known as:

A. Operating profit
B. Gross profit
C. Net profit
D. Contribution

Q2. Consider the following information:

 Sales revenue: \$12 per unit

 Variable manufacturing expenses: \$3 per unit

 Variable marketing and admin. expenses: \$2 per unit

 Fixed manufacturing expenses: \$1,500

 Fixed marketing and admin. expenses: \$600

Based on the above information, the contribution margin is:

A. \$15
B. \$7
C. \$10
D. \$9

Based on the above information, the breakeven point is:

A. 175 units
B. 300 units
C. 700 units
D. 233 units

Q3 Which of the following is correct about breakeven point of a company?

A. Revenue > variable costs + fixed costs
B. Revenue = variable costs + fixed costs
C. Revenue < variable costs + fixed costs
D. None of the above

Q4 Cost-Volume-Profit (or Breakeven) Analysis

Gibson Ltd manufactures wooden guitar cases and has the following forecast costs:

Cost per case £
Wood 40
Labour 50
Other materials 20

Fixed costs per month
Tools rental 2,000
Workshop rent 3,000
Salaries 5,000

Usually monthly sales are 300 units.

Required:
(a) What is contribution? Definition and calculation.

(b) Calculate the break-even point in units if the selling price is £150 per case?

(c) Calculate the Contribution-to-sales ratio and use this ratio to calculate the
break-even point in sales revenue

(d) What is “Margin-of safety”?

(e) If the selling price is increased to £160 per case, how many need to be sold to
make a £10,000 profit per month?

Q5 – Further breakeven analysis:

Fixed Expenses Variable Expenses

Rent £24,000 Cost of Sales 58% of sales

Salaries £40,000 Material Supplies 7% of sales

Depreciation £13,000 Sales Commission 5% of sales

(a) What is the contribution-to-sales ratio?
(b) What is the break-even point in pounds?
(c) If a profit of £35,000 is required what is the new sales revenue to achieve this?

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