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Sadiq Furniture: break-even analysis and limiting factor
MA Management Accounting. 20 marks, about 36 minutes at exam pace. Section B style, 20 marks.
How to use this practice
- This is practice written for this site in the style of ACCA's constructed response questions. It is not an ACCA question and the marking points are not ACCA's marking scheme. It follows the MA syllabus on marginal costing, cost-volume-profit analysis and limiting factor decisions.
- Write your answer in the box under each requirement. Show your workings for calculations. Your text stays in this browser.
- Afterwards, open the marking points and tick each point that your answer made clearly and only once. Points marked as figures are correct amounts.
Scenario
Sadiq Furniture makes wooden chairs. Each chair sells for $80. The variable cost of a chair is $50, made up of materials $28, labour $16 and variable overhead $6. Fixed costs are $90,000 a year. Budgeted sales for the coming year are 4,000 chairs.
The owner is also thinking about making tables. A table sells for $150 and has a variable cost of $90. A chair needs 2 labour hours and a table needs 5 labour hours. Only 12,000 labour hours are available in the year. Demand is 4,000 chairs and 2,000 tables.
Calculate the break-even point in units and in revenue for chairs, and the margin of safety as a percentage of budgeted sales. (6 marks)
Note: Show the contribution per unit first.
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Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.
Marks counted: 0 of 6
Calculate the number of chairs that must be sold to make a profit of $60,000, and the profit at the budgeted level of sales. (4 marks)
Note: Use the contribution per unit.
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Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.
Marks counted: 0 of 4
Labour hours are limited to 12,000. Calculate the production plan that maximises contribution and state the total contribution (before fixed costs). (6 marks)
Note: Rank the products by contribution per labour hour.
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Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.
Marks counted: 0 of 6
Explain two limitations of break-even analysis for this business. (4 marks)
Note: Link your answer to the facts in the scenario.
0 words
Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.
Marks counted: 0 of 4
Marks counted across all requirements: 0 of 20. The pass mark for ACCA exams is 50 percent.