- 20 Marks
MA – L2 – Q39 – Cost-volume-profit (CVP) analysis
Compute break-even sales for Fuseni Limited's two products, maintaining budgeted sales ratio, with detailed overhead allocation.
Question
Fuseni Limited has two divisions each of which makes a different product. The budgeted data for the next year is as under:
| Product A | Product B | |
|---|---|---|
| Sales | GH¢ 200,000,000 | GH¢ 150,000,000 |
| Direct material | GH¢ 45,000,000 | GH¢ 30,000,000 |
| Direct labour | GH¢ 60,000,000 | GH¢ 45,000,000 |
| Factory overheads | GH¢ 35,000,000 | GH¢ 15,000,000 |
| Price per unit | GH¢ 20 | GH¢ 25 |
Details of factory overheads are as follows:
(i) Product A is stored in a rented warehouse whose rent is GH¢0.25 million per month. Product B is required to be stored under special conditions. It is stored in a third party warehouse and the company has to pay rent on the basis of space utilised. The rent has been budgeted at GH¢0.12 million per month.
(ii) Indirect labour has been budgeted at 20% of direct labour. 70% of the indirect labour is fixed.
(iii) Depreciation for assets pertaining to product A and B is GH¢6.0 million and GH¢2.0 million respectively.
(iv) 80% of the cost of electricity and fuel varies in accordance with the production in units and the total cost has been budgeted at GH¢4.0 million.
(v) All other overheads are fixed.
Required:
Compute the break-even sales assuming that the ratio of quantities sold would remain the same, as has been budgeted above.
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