coeb442

1. ASSIGNMENT 1
Name: _________________________________________ Id: ____________ Section: ________
Q1. TUM TOM sells man’s suits. The cost of each suit is comprised of the following: selling
price of $1,000 and variable (flexible) costs of $400. Total fixed costs for TUM TOM are
$90,000.
i. What is the contribution margin per suit? (2 marks)
$1,000 ­ $400 = $600
ii. What is the TUM TOM’s total profit when 200 suits are sold? (4 marks)
Revenues – Flexible Costs – Capacity­Related Costs = Total Profit
200 ($1,000) – 200($400) ­ $90,000 = $30,000
iii. How many suits must TUM TOM sell to reach the breakeven point? (2 marks)
X = $90,000/$600 = 150 suits
iv. How many suits must TUM TOM sell to yield a profit of $60,000? (5 marks)
Total Revenues – Total Costs = Total Profit
$1,000 X ­ $400X ­ $90,000 = $60,000; X = 250 suits
Q2. AA & Co produces a device for electronic applications. The system has a fixed cost of
RM600,000 per year and a variable cost of RM80 per unit, and sells for RM140 per unit.
i. Determine the breakeven quantity for the system. (3 marks)
Current: QBE = 600,000/(140­80) =10,000 units
ii. Calculate the breakeven quantity if the variable cost is reduced by 25%. (3marks]
New: QBE = 600,000/(140­60) =7500 units
iii. Calculate the difference in profit at 20% above breakeven point before and after
the change in variable cost. (6 marks)
Before: profit=140Q – (600,000 + 80Q)= 1680000­1560000=RM120,000
After: profit=140Q – (600,000 + 60Q)= 1260000­1140000=RM120,000
No change in profit.