Millenium Bhd is a manufacturing company which produces one type of product, Z3. The current year’s budget based on the production and sales of 40,000 units of Z3 shows the following data: RM Total variable costs 2,520,000 Fixed overhead costs: Production 2,900,000 Administrative 500,000 Selling and distribution 578,000 Total contribution 4,680,000 The manager is not satisfied with the current sales and budgeted annual profit. He wishes to have a minimum annual profit of RM1,000,000. He suggests that the product should be advertised on television which will incur additional cost of RM50,000. He also proposes to hire a consultant and the annual fee is RM252,000. As a result of these sales volume will increase by 32%. The variable cost per unit will remain unchanged. Required: a. Using the current budgeted data only, calculate: i. the annual profit ii. the selling price per unit iii. the break-even point in units b. Based on the manager’s suggestions, calculate: i. the new selling price to obtain the minimum annual profits of RM1,000,000. ii. the revised break-even point in units using the price calculated in (i) above
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Millenium Bhd is a manufacturing company which produces one type of product, Z3. The current year’s budget based on the production and sales of 40,000 units of Z3 shows the following data:
|
|
RM |
|
Total variable costs |
2,520,000 |
|
|
|
|
Fixed overhead costs: |
|
|
Production |
2,900,000 |
|
Administrative |
500,000 |
|
Selling and distribution |
578,000 |
|
|
|
|
Total contribution |
4,680,000 |
The manager is not satisfied with the current sales and budgeted annual profit. He wishes to have a minimum annual profit of RM1,000,000. He suggests that the product should be advertised on television which will incur additional cost of RM50,000. He also proposes to hire a consultant and the annual fee is RM252,000. As a result of these sales volume will increase by 32%. The variable cost per unit will remain unchanged.
Required:
a. Using the current budgeted data only, calculate:
i. the annual profit
ii. the selling price per unit
iii. the break-even point in units
b. Based on the manager’s suggestions, calculate:
i. the new selling price to obtain the minimum annual profits of RM1,000,000.
ii. the revised break-even point in units using the price calculated in (i) above.
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