Exercise - Cost Volume Profit Analysis and Relevant Cost

QUIZ 2 – COST VOLUME PROFIT ANALYSIS AND RELEVANT COST

Whynot the owner of Cannot Café is considering to produce a variety of pizza namely Apanama, Apadia and Apatu. Every pizza has its own selling price and cost based on their own machine capacity. Below are the information obtained regarding the said pizza;

	Apanama	Apadia	Apatu
Production units	9000	6000	5000
Sales (RM)	RM72,000	RM60,000	RM35,000
Variable cost	27,000	15,000	9,000
Fixed cost	24,000	30,000	16,000

The fixed cost consist of the rental of machines and the salary of designated chef for each pizza. The sales mix is expected to remain steady for the next 3 months.

Required:

1) Prepare the cost per unit for each of pizza for current production and sales.

2) How many pizza should Whynot produce in order to break-even (to the nearest figure)

3) Calculate the break-even point for each of the above pizza.

4) Prove your calculation in Ringgit Malaysia for the break-even point as mentioned in no.2 and no.3 above.

5) Say, Whynot wanted to achieve a target profit of RM10,000, how many units
should he produce in order to achieve the desired figure?

6) Considering a production of a new pizza ‘Apadehal’, Whynot is targeting a sales of 5,000 units at RM8 per piece. Dreaming to achieve the target profit even further RM5,000 from the original target, the variable cost of this special pizza is half from the selling price and the fixed cost is estimated to be RM20,000. Should Whynot proceed with the plan and why not?

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