You are a marketing manager at a company that manufactures and sells handmade jewelry. Your company is considering participating in a sales carnival event held annually in your city. The sales carnival attracts a large number of visitors, providing an opportunity for businesses to showcase and sell their products. Here are the details of the scenario for Cost-Volume-Profit (CVP) analysis. Fixed costs: Booth rental: RM500 for the duration of the carnival. ✓ Marketing materials: RM200 for banners, flyers and promotional items. ✓ Staffing: RM300 for hiring extra personnel to manage the booth during the event. Variable costs: ➤ Cost of goods sold: RM10 per piece of handmade jewelry. Sales commission: 10% of the selling price for each piece sold at the carnival. Selling price: ■ The selling price of jewelry at the carnival is expected to be RM30 per piece. Your task is to conduct a CVP analysis to determine the feasibility of participating in the sales carnival. Consider the following assumptions for your analysis: i. ii. iii. Expected sales volume: 50 to 200 pieces of jewelry during the carnival. Ignore any other overhead costs not mentioned in the scenario. Assume a linear relationship between sales volume and variable costs. REQUIRED: a) Calculate the contribution margin per unit and the contribution margin ratio. b) Determine the breakeven point in units and sales revenue. c) Prepare a CVP graph showing the breakeven point and the profit/loss area. d) Analyze the sensitivity of profits to changes in sales volume. e) Based on your analysis, provide a recommendation on whether the company should participate in the sales carnival and justify your decision. f) If the company wants to have a profit of RM10,000 how much unit sales should be made?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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You are a marketing manager at a company that manufactures and sells handmade jewelry.
Your company is considering participating in a sales carnival event held annually in your
city. The sales carnival attracts a large number of visitors, providing an opportunity for
businesses to showcase and sell their products.
Here are the details of the scenario for Cost-Volume-Profit (CVP) analysis.
Fixed costs:
Booth rental: RM500 for the duration of the carnival.
✓ Marketing materials: RM200 for banners, flyers and promotional items.
✓ Staffing: RM300 for hiring extra personnel to manage the booth during the event.
Variable costs:
➤ Cost of goods sold: RM10 per piece of handmade jewelry.
Sales commission: 10% of the selling price for each piece sold at the carnival.
Selling price:
■ The selling price of jewelry at the carnival is expected to be RM30 per piece.
Your task is to conduct a CVP analysis to determine the feasibility of participating in the sales
carnival. Consider the following assumptions for your analysis:
i.
ii.
iii.
Expected sales volume: 50 to 200 pieces of jewelry during the carnival.
Ignore any other overhead costs not mentioned in the scenario.
Assume a linear relationship between sales volume and variable costs.
REQUIRED:
a) Calculate the contribution margin per unit and the contribution margin ratio.
b) Determine the breakeven point in units and sales revenue.
c) Prepare a CVP graph showing the breakeven point and the profit/loss area.
d) Analyze the sensitivity of profits to changes in sales volume.
e) Based on your analysis, provide a recommendation on whether the company should
participate in the sales carnival and justify your decision.
f) If the company wants to have a profit of RM10,000 how much unit sales should be
made?
Transcribed Image Text:You are a marketing manager at a company that manufactures and sells handmade jewelry. Your company is considering participating in a sales carnival event held annually in your city. The sales carnival attracts a large number of visitors, providing an opportunity for businesses to showcase and sell their products. Here are the details of the scenario for Cost-Volume-Profit (CVP) analysis. Fixed costs: Booth rental: RM500 for the duration of the carnival. ✓ Marketing materials: RM200 for banners, flyers and promotional items. ✓ Staffing: RM300 for hiring extra personnel to manage the booth during the event. Variable costs: ➤ Cost of goods sold: RM10 per piece of handmade jewelry. Sales commission: 10% of the selling price for each piece sold at the carnival. Selling price: ■ The selling price of jewelry at the carnival is expected to be RM30 per piece. Your task is to conduct a CVP analysis to determine the feasibility of participating in the sales carnival. Consider the following assumptions for your analysis: i. ii. iii. Expected sales volume: 50 to 200 pieces of jewelry during the carnival. Ignore any other overhead costs not mentioned in the scenario. Assume a linear relationship between sales volume and variable costs. REQUIRED: a) Calculate the contribution margin per unit and the contribution margin ratio. b) Determine the breakeven point in units and sales revenue. c) Prepare a CVP graph showing the breakeven point and the profit/loss area. d) Analyze the sensitivity of profits to changes in sales volume. e) Based on your analysis, provide a recommendation on whether the company should participate in the sales carnival and justify your decision. f) If the company wants to have a profit of RM10,000 how much unit sales should be made?
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