Kick Soda Sdn Bhd. is the authorized commercial producer of the "Rootbeer Soda" soft drink, which is made in one of Pahang's industrial zones. They sell soft drinks at Kuantan's 250 schools. The management accountant has gathered all the data on predicted operations in order to build the company's financial strategy for the year 2021. The following is a breakdown of the costs: Expected sales volume Variable cost: 200,000 bottles per annum Cost of material Cost of labour Selling and distribution Administration expenses Other overhead expenses RM 2.15 per bottles RM 0.60 per bottles RM 0.25 per bottles RM 120,000 per annum RM 50,000 per annum Additional information: (i) The soft drink is sold at RM 5.00 per bottles. (ii) For the administration expenses, 60% in a fixed cost, while the remaining is a variable cost. (iii) For other overhead expenses, 20% is variable cost and the balance is fixed
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
(b) The cost of materials is expected to rise by 20%, while total fixed costs are expected to rise by RM13,000 per year:
Calculate the number of units that must be sold for the company's net profit to be maintained. Assume that the rest of the data is unchanged.
Determine a new break-even point and margin of safety in bottles if the selling price change to RM 6 per packet. Assume that all other variables remain constant.
please provide calculations for each of them.
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