MANAGEMENT ACCOUNTING - BEA (D & E Part Solution)

MANAGEMENT ACCOUNTING

Topic: Break – Even – Analysis

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This is the D and E part solution of the BEA question. 

Now, answer to D:

a.     Computation of Margin of Safety (MOS)

Actual Sales – Sales at Break Even

MOS=         145,500 – 88,525 = 56,975.

b.    Calculation of Break Even Point in value assuming sales increase by 40%

Initial sales was N145,500

We have increase of 40% which is 0.45 x 145,500 = 58,000. Add this 58,000 to 145,500 you will get 203,500. This 203,500 is our new sales with the increase of that 40%.

So, we have to calculate for a new CMR and then calculate for the new B.E.P.

CMR = 147,200

             203,500

= 0.72

We got 147, 200 as a new contribution.  When you minus 56,300 which is our variable cost from new sales of 203,500 then you have a new contribution of 147,200.

Then finally, our new B.E. Point in value when sales increase by 40% is thus:

B.E.P in value = 54,000

                             0.72

B.E.P = N75,000

Note: We had argument on this last answer that the variable cost also should be increased by 40%.  And we will get back to you if this part needs that 40% increase, then we will do a new computation on this part e. But, from a to d is ok.

Warmest regards to you all.