Page 8 - CIMA OCS August 2018 Day 1 Suggested Solutions

CIMA AUGUST 2018 – OPERATIONAL CASE STUDY

EXERCISE 3 – DECISION MAKING

EXERCISE 3(a) – CVP Analysis

Question Your response

Assuming that Using the forecast figures on page19:
budgeted total D$000s
fixed production Total revenue 144,010
overheads Variable production costs (83,616 – 15,000 given) (68,616)
amount to D$15m Total contribution 75,394
in 2019, calculate
a CS ratio for TFT
C/S ratio = 75,394 / 144,010 = 0.5235

Estimate the Total fixed costs
break even sales D$000s
revenue and the Budgeted 2019 Fixed production costs - given 15,000
associated margin Actual 2018 selling and distribution costs (assume 18,120
of safety for 2019, mainly fixed)
assuming that Actual 2018 admin expenses (assume mainly fixed) 15,600
sales are made in Total fixed costs 48,720
constant standard
mix Weighted average CS ratio in standard mix = 0.5235

Using just budgeted fixed production costs

BEP (revenue) = fixed costs / CS ratio = 15,000/0.5235 = D$28,653
Margin of safety = (144,010-28,653)/144,010 = 80%

Using total fixed operating costs

BEP (revenue) = fixed costs / CS ratio = 48,720/0.5235 = D$93,066
Margin of safety = (144,010-93,066)/144,010 = 35%

50 KAPLAN PUBLISHING