HA2011 Tutorial Questions On Management Accounting

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Question 5 – Week 10 (12b) (7 marks)

Tiara Corporation manufactures and sells scarfs. Price and cost data for the company are provided below:

Selling price per unit $50
Variable costs per unit
Manufacturing costs
Direct material 15
Direct labour 8
Variable manufacturing overhead 12
Variable selling and administrative costs 3
Annual fixed costs
Fixed manufacturing overhead $2,640,000
Fixed selling and administrative costs $1,560,000
Forecasted annual sales (units) 500,000
Required:
  1. What is Tiara Corporation’s break-even point in dollars?
  2. How many units would Tiara Corporation have to sell in order to earn a before tax profit of $480,000?
  3. What is the company’s margin of safety (in dollars)?
  4. If the company’s direct material costs increase by 20 percent and the fixed selling and administrative costs decrease by 20 percent, how many units will the company have to sell next year to reach its break-even point?

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