Australian

School of Business
ACCT1501 Accounting and Financial Management 1A
Session 1 2013

TUTORIAL WEEK 13 Solutions to Tutorial Questions

Tutorial Questions
v Case: YCube Ltd; Problem16.16
Case: YCube Limited
YCube Ltd manufactures electronic games. In 2007, YCube sold 35,000 games at $40 each.
Total costs amounted to $550,000, of which $200,000 were considered fixed.
In 2008 the company is considering replacing a part that costs $3.00 with a better part costing
$4.50 per unit. It is estimated that all other variable costs per unit will be the same. The only
increase in fixed costs would be caused by the installation of a new machine. This machine
would cost $20,000, and would have a useful life of 5 years and no salvage value. The
company uses straight-line depreciation.
1. What was YCube Ltds break-even point in number of units in 2007?
2. How many units would the company have had to sell in 2007 to earn a profit of $140,000?
3. If YCube holds the sales price constant and makes the suggested changes, how many
units of product must be sold in 2008 to break even?
4. If the firm holds price constant and makes the suggested changes, how many units of
product will the company have to sell in 2008, to make the same net profit as in 2007?
5. If YCube wishes to maintain the same contribution margin ratio in 2008 as it had in 2007,
what selling price per unit must it charge to cover the increased direct material cost?
Solutions:
1.
Total costs = 550,000. Fixed costs = 200,000, therefore variable costs must be 350,000.
At 35,000 units, this translates to a unit variable cost (UVC) of $10.
Break-even point = FC/ (Price UVC) = 200,000 / (40-10) = 6666.6
Rounding up: Breakeven point is 6667 units.
2.

To earn a profit of 140,000: (140,000 + 200,000) / (40-10) = 11333.3 = 11,334 units

3.
Holding price constant at $40, and making changes:
Fixed costs are now 204,000 (200,000 + (20,000/5))
Unit variable costs are now $11.50 ($10 - 3.00 + 4.50)
Break even = 204,000 / (40 -11.50) = 204,000 / 28.5 = 7157.89 = 7158 units
4.
Profit in 2007 = (350,000 x $40) (550,000) = 850,000
To earn this profit in 2008, with price constant:
X units
= (850,000 + 204,000) / 28.5 = 36985.46= 36,983 units

5. Contribution margin ratio in 2007 = unit contribution ratio/ price = 30 / 40 = 0.75

Price in 2008 to obtain same contribution margin ratio:
0.75 = (P-VC)/P
0.75P = P 11.50
P = $46
Problem 16.16
(1)
0.2R
0.2R
R

= R 0.4R - $24,000
= 0.6R - $24,000
= $60,000

Sales
$60,000
Less: variable expenses
(24,000) [60,000 x 0.4]
Contribution margin
$36,000
Less: fixed expenses
(24,000)
Net income
$12,000
$12,000 = $60,000 x 20%
(2i)

0.2(10)x
2x
x

= 10x 0.4(10)x $24,000

= 10x 4x $24,000
= 6,000 units

(2ii)

0.25(10)x
2.5x
x

= 10x 0.4(10)x - $24,000

= 10x 4x $24,000
= 6,858 units

3.

NPAT
0.2R
0.2R
NPBT

= NPBT tax(NPBT)
= NPBT 0.4(NPBT)
= [1 0.4]NPBT
= 0.33R

0.33R
0.33R
R

= R 0.4R $24,000
= 0.6R $24,000
= $88,889*

*Some students will arrive at $90,000 if they use NPBT = 0.333333333333

In exams, we will specify the number of decimal points you need to use in every step of the
calculation so that students will arrive at the same answer.