Truly Sambalicious Factory is the sole manufacturer and supplier of three types of traditional sambal in bulk using boxes containing 10 bottles with a capacity of 100ml of sambal to be distributed to restaurant operators around Kota Kinabalu and Labuan. Sambal Gesek Negeri Sembilan (a) is sold at RM80 per box, with a variable cost of RM35. Sambal Hitam Pahang (b) is priced at RM200 per box, with a variable cost of RM80, while Sambal Goreng Jawa (c) is sold at RM28 per box with a variable cost of RM25. Truly Sambalicious's factory has an annual fixed cost of RM328,000. Last year, the factory supplied 1200 boxes of Sambal Gesek Negeri Sembilan, 2300 boxes of Sambal Hitam Pahang, and 6050 boxes of Sambal Goreng Jawa in Sabah and Labuan. (a) What is an initial break-even for Truly Sambalicious Factory in this case? (b) Suppose the factory has excess capacity on the above supply, then act to reduce the selling price of Sambal Hitam Pahang from RM200 per box to RM120 per box, expecting that its sales will increase from 2300 boxes to 3610 boxes. Get a new break-even point for this plant. (c) What conclusions can you make from this break-even analysis?
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.
Truly Sambalicious Factory is the sole manufacturer and supplier of three types of traditional sambal in bulk using boxes containing 10 bottles with a capacity of 100ml of sambal to be distributed to restaurant operators around Kota Kinabalu and Labuan. Sambal Gesek Negeri Sembilan (a) is sold at RM80 per box, with a variable cost of RM35. Sambal Hitam Pahang (b) is priced at RM200 per box, with a variable cost of RM80, while Sambal Goreng Jawa (c) is sold at RM28 per box with a variable cost of RM25. Truly Sambalicious's factory has an annual fixed cost of RM328,000. Last year, the factory supplied 1200 boxes of Sambal Gesek Negeri Sembilan, 2300 boxes of Sambal Hitam Pahang, and 6050 boxes of Sambal Goreng Jawa in Sabah and Labuan.
(a) What is an initial break-even for Truly Sambalicious Factory in this case?
(b) Suppose the factory has excess capacity on the above supply, then act to reduce the selling price of
Sambal Hitam Pahang from RM200 per box to RM120 per box, expecting that its sales will increase from 2300 boxes to 3610 boxes. Get a new break-even point for this plant.
(c) What conclusions can you make from this break-even analysis?
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