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QB1501 – Introduction to Accounting
Management Accounting – Tutorial Question Week 8

Q1. The amount by which an item contributes towards covering fixed cost and providing
for profit is known as:

A. Operating profit
B. Gross profit
C. Net profit
D. Contribution

Q2. Consider the following information:

 Sales revenue: $12 per unit

 Variable manufacturing expenses: $3 per unit

 Variable marketing and admin. expenses: $2 per unit

 Fixed manufacturing expenses: $1,500

 Fixed marketing and admin. expenses: $600

Based on the above information, the contribution margin is:

A. $15
B. $7
C. $10
D. $9

Based on the above information, the breakeven point is:

A. 175 units
B. 300 units
C. 700 units
D. 233 units

Q3 Which of the following is correct about breakeven point of a company?

A. Revenue > variable costs + fixed costs
B. Revenue = variable costs + fixed costs
C. Revenue < variable costs + fixed costs
D. None of the above

Q4 Cost-Volume-Profit (or Breakeven) Analysis

Gibson Ltd manufactures wooden guitar cases and has the following forecast costs:

Cost per case £
Wood 40
Labour 50
Other materials 20

Fixed costs per month
Tools rental 2,000
Workshop rent 3,000
Salaries 5,000

Usually monthly sales are 300 units.

(a) What is contribution? Definition and calculation.

(b) Calculate the break-even point in units if the selling price is £150 per case?

(c) Calculate the Contribution-to-sales ratio and use this ratio to calculate the
break-even point in sales revenue

(d) What is “Margin-of safety”?

(e) If the selling price is increased to £160 per case, how many need to be sold to
make a £10,000 profit per month?

Q5 – Further breakeven analysis:

Fixed Expenses Variable Expenses

Rent £24,000 Cost of Sales 58% of sales

Salaries £40,000 Material Supplies 7% of sales

Depreciation £13,000 Sales Commission 5% of sales

(a) What is the contribution-to-sales ratio?
(b) What is the break-even point in pounds?
(c) If a profit of £35,000 is required what is the new sales revenue to achieve this?

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