Limitations of break-even analysis
-Fixed costs are likely to change at different activity levels. A stepped fixed cost line is
more accurate.
-Variable costs and sales are unlikely to be linear due to discounts, overtime payments.
- More suitable for short term planning and not long term planning.
1. False assumptions: the break even analysis is based on the following false assumptions.
- Proportionate change in variable costs.
- Segregation of costs into fixed and variable components.
2. Growth condition un-assumed. Break – even analysis does not assume condition of growth in an organization, whereas in real life an organization’s operations undergo a continuous process of growth and expansion.
3. Determination of optimum sales – mix. The application of break – even analysis to multi – product firm is very difficult.
4. Short – run analysis. Break – even analysis is essentially a short – run analysis because it is based on the break – down of costs into fixed and variable costs and in the long – run all costs are variable.
5. Static nature. Break – even analysis is static in nature as it is based on historical costs thus; it is of limited use for companies undergoing rapid changes.
marto answered the question on February 22, 2019 at 07:06
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ABC limited manufactures and sells a single product branded “Zed”. The following data has been
extracted from the budgets and standard costs to product “Zed”.
(Solved)
ABC limited manufactures and sells a single product branded 'Zed'. The following data has been
extracted from the budgets and standard costs to product 'Zed'.
Date posted:
February 22, 2019
.
Answers (1)
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Highlight six limitations of cost-volume-profit analysis.
(Solved)
Highlight six limitations of cost-volume-profit analysis.
Date posted:
February 22, 2019
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Answers (1)
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Describe the difference between the accountant's and the economist's model of cost-volume profit
analysis.
(Solved)
Describe the difference between the accountant's and the economist's model of cost-volume profit
analysis.
Date posted:
February 22, 2019
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Answers (1)
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Tec Ltd. manufactures a single product branded 'Zed' for sale on the local and international
market.
The cost structure per unit of product 'Zed' is as follows:
(Solved)
Tec Ltd. manufactures a single product branded 'Zed' for sale on the local and international
market.
The cost structure per unit of product "'zed' is as follows:
Additional information:
1. The current sales level for the company amounts to Sh. 800,000.
2. The fixed overheads per unit have been calculated based on the current sales level of 4,000
units.
Required:
i) Sales price per unit.
ii) Current profit or loss.
iii) Break even point in units and shillings.
iv) Suggest four measures that could be taken to improve the current profit position
Date posted:
February 21, 2019
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Answers (1)
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Sifa Ltd. manufactures and sells a single product. The following information regarding the
company for the year ended 31 October 2014 is provided:
(Solved)
Sifa Ltd. manufactures and sells a single product. The following information regarding the
company for the year ended 31 October 2014 is provided:
The following changes are expected to occur during the year ending 31 October 2015:
1. Variable selling and distribution expenses will reduce by 5% due to increased efficiency of the
sales staff.
2. Variable overheads will increase by 3%.
3. Labour cost will reduce by 4%.
4. Material cost will increase by 2% due to inflation.
5. Selling price will reduce by 3% in order to attract customers.
6. No stock is expected at the end of the period.
Required;-
i) Expected break even sales for the year ending 31 October 2015.
ii) Expected margin of safety in sales value for the year ending 31 October 2015.
iii) Expected sales value at which a profit of Sh.2, 250,000 will be realised.
iv) A summary of the operating statement to show net profit in (b) (iii) above.
Date posted:
February 21, 2019
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Answers (1)
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Jitegemee limited company uses a process costing system in its operation. In one of the production processes, two joint products A and B and a...
(Solved)
Jitegemee limited company uses a process costing system in its operation. In one of the
production processes, two joint products A and B and a by-product C are produced
The following additional information is provided:
1. Each processing run requires 12,500 kilograms of output.the costs incurred are as follow:-
2. It is expected that 20% of the input will be damaged in the production process. This is sold as
scrap at sh. 10 per kilogram. The damaged items are detected at the end of the production
process.
3. The output from the production process is as follows:-
4. Product A has to be processed further at a cost of sh. 100 per kilogram before sale
5. The joint costs are allocated to the products on the basis of net releasable value
Required:
i. Determine the total cost of the output from the production process
ii. Calculate the allocated joint costs for product A and product B
iii. Prepare a process account for the production process above
Date posted:
February 21, 2019
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Answers (1)
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The following information is obtained in respect of process 2 of the month of September;
(Solved)
The following information is obtained in respect of process 2 of the month of September;
There was a normal loss in the process of 10% of production units' scrapped realized sh. 50 per unit,
use FIFO method
Required:
i. Statement of production
ii. Statement of cost and evaluation
iii. Process account
iv. Abnormal loss / gain account
Date posted:
February 21, 2019
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Answers (1)
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a) Calculate the cost of completed units transferred to process 3
b) Calculate the value of closing WIP
c) Show (i) Process 2 account
(ii) Abnormal Gain account
(Solved)
Required:
a) Calculate the cost of completed units transferred to process 3
b) Calculate the value of closing WIP
c) Show (i) Process 2 account
(ii) Abnormal Gain account
Date posted:
February 21, 2019
.
Answers (1)
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Kenya chemical industries limited, process a range of products including bleaching detergent which
passes three processes before completion and transferred to finished goods store. The following
information...
(Solved)
Kenya chemical industries limited, process a range of products including bleaching detergent which
passes three processes before completion and transferred to finished goods store. The following
information was extracted from the books of the company for the month of October.
Date posted:
February 21, 2019
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Answers (1)
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The manufacturing process of ABC limited results in three products namely Exe, Wye and Zed
(Solved)
The manufacturing process of ABC limited results in three products namely Exe, Wye and Zed
Additional information;-
1. The final selling prices per litre of products Exe, Wye and Zed are shs.15, shs.18 and shs.4
respectively.
2. There are no further costs associated with by product Zed
3. Product Wye requires further processing at a cost of sh. 1.50 per litre
4. All the three products incur packaging costs of sh. 0.50 per litre before they are sold.
Required:
i) Calculate the number of equivalent units produced
ii) Calculate the costs of products Exe and Wye
iii) Apportion the common costs to joint products based on sales at the point of separation
iv) Prepare process II account for the month of January 2008
Date posted:
February 21, 2019
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Answers (1)
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Good Hope Pharmaceutical Company purchases raw material that is processed to yield three
chemicals namely;Zetamol,Paramol, and Bethamol.In January 2009,the company purchased 10,000
kilogrammes of the raw material...
(Solved)
Good Hope Pharmaceutical Company purchases raw material that is processed to yield three
chemicals namely;Zetamol,Paramol, and Bethamol.In January 2009,the company purchased 10,000
kilogrammes of the raw material nat a cost of sh.2,500,000 and incurred joint conversion costs of
sh.700,000.Sales and production information for the month of January wered as follows;
Zetamol and Paramol are sold to other pharmaceutical companies at the split off point. Bethamol can
be sold at the split off point or processed further and packaged for sale as an asthma medication.
Required
Allocate the joint costs to the three products using;
i) The physical units sold
ii) The sales value at split off method
iii) The net realizable value method
iv) Suppose that half the production of Paramol could be purified and mixed with all the
production of Zetamol to yield parazetamol.All further processing costs amount to
sh.350,000.The selling price for parazetamol is sh.1,120 per kilogramme.Advise the company
on whether to further process Zetamol into 2,000 kilogrammes of parazetamol.
Date posted:
February 21, 2019
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Answers (1)
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ABC Company limited produces four products A, B, C and D
The following information is provided
1. The joint processing requires 10,000 kilograms of raw materials input,...
(Solved)
ABC Company limited produces four products A, B, C and D
The following information is provided
1. The joint processing requires 10,000 kilograms of raw materials input, costing sh. 6 million
2. Joint process labour and material costs are sh. 5,920,000
3. Normal loss is 20% of raw material input, with product A's output being 2000 kilogram mes,
product B's output being 2,500 kilogram mes, product C's output being 2,500 kilogram mes and
the balance being from product D. No abnormal loss was reported.
4. Product A enters into process 2 incurring a further cost of sh. 1,255,000 , product B enters
process 3 incurring a further cost of sh. 1,493,750 product C enters into process 4 incurring a
further cost of sh. 1,118,750. Product D does not require additional processing. There are no
further processing costs.
5. The company‟s policy is to apportion joint costs on the basis of output
6. The selling price of each unit of products A, B C and D is sh. 1,500, sh. 3,460, sh. 2760 and sh.
1,000 respectively.
7. The company is in the process of analyzing the performance of each product in order to make
better decisions.
Required:
a) i) Cost per unit of product A
ii) Profit and loss statement for each individual product and for the company in a columnar
format
b) The company's management intends to start using the net realizable value method to allocate
joint costs. Show how this method would affect the profitability of individual products and that
of the company in (a) (ii) above.
Date posted:
February 21, 2019
.
Answers (1)
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a) Explain why it is necessary to distinguish between direct labour and indirect labour, with
particular reference to the effect on gross profit and net profit.
b)...
(Solved)
a) Explain why it is necessary to distinguish between direct labor and indirect labor, with
particular reference to the effect on gross profit and net profit.
b) Unique Ltd. manufactures a single product. The product passes through three processes before
completion. In the month of January 2013, the following data was recorded in respect to process
Required:
i) Statement of equivalent production.
ii) Statement of costs.
iii) Process 2 account
Date posted:
February 21, 2019
.
Answers (1)
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Nald Ltd. manufactures a chemical product and uses process costing to account for its work in
progress. During the month of October 2013, 5,000 units...
(Solved)
Nald Ltd. manufactures a chemical product and uses process costing to account for its work in
progress. During the month of October 2013, 5,000 units were introduced to process 1 and the
following costs were incurred:
Additional information:
1. The normal loss in process 1 was estimated at 10%.
2. The scrapped normal loss units were sold at Sh.4 per unit.
3. Inspection is usually done at the end of the process; therefore any units scrapped would have
passed through the entire process.
Required
i) Statement of equivalent production
ii) Statement of cost
iii) Statement of evaluation of finished goods
iv) Process 1 account
Date posted:
February 21, 2019
.
Answers (1)
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Explain the meaning of the following terms in regard to the cost and financial accounting
systems:
i) Integrated cost accounts
ii) Interlocking cost accounts
iii) Cost ledger control account
iv)...
(Solved)
Explain the meaning of the following terms in regard to the cost and financial accounting
systems:
i) Integrated cost accounts
ii) Interlocking cost accounts
iii) Cost ledger control account
iv) Cost ledger contra account
Date posted:
February 21, 2019
.
Answers (1)
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More Ltd. is a medium size manufacturing company and it maintains separate cost and financialaccounting books. The financial accountant provided the following statement for the...
(Solved)
More Ltd. is a medium size manufacturing company and it maintains separate cost and financial
accounting books. The financial accountant provided the following statement for the year ended 31
March 2004.
Required:
Prepare a profit reconciliation statement for the year ended 31 March 2004.
Date posted:
February 19, 2019
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Answers (1)
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Tengeneza Ltd makes three main products using broadly the same production methods and
equipment for each. A conventional product costing system is used at present, although...
(Solved)
Tengeneza Ltd makes three main products using broadly the same production methods and
equipment for each. A conventional product costing system is used at present, although an
Activity Based Costing (ABC) system is being considered.
Date posted:
February 15, 2019
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Answers (1)
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Briefly explain bases of apportionment of overheads.
(Solved)
Briefly explain bases of apportionment of overheads.
Date posted:
February 15, 2019
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Answers (1)
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Apex Furniture Ltd. manufactures three products: S, M and L.
(Solved)
Apex Furniture Ltd. manufactures three products: S, M and L.
Date posted:
February 15, 2019
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Answers (1)
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BabyCom Limited manufactures different types of toys. The company engages three employees.
Abel, Bilha and Charles.
(Solved)
BabyCom Limited manufactures different types of toys. The company engages three employees.
Abel, Bilha and Charles.
Date posted:
February 15, 2019
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Answers (1)