Question $4\{20$ marks$\}$

a$.$ Cost$-$volume$-$profit analysis mainly used by cost$-$management accountants, financial

accountants and microeconomist to understand production, cost, and profit bebarojev.

Explain the inter$-$relationship among total revenue, marginal revenue, and profit

maximization. Why does understanding contribution margin play important role in

recowering total cast?

b$.$ Two PMU students intending to open a milkshake bar on the Corniche, Al$-$Khobar. As part of

the feasibility study the students studied the industry reports about existing restaurants which

offer similar products and conducted some basic research to estimate demand, potential cost

and expected revenue. The students wish to offer shakes with different flawguk which are

currenty popular among younger generation. Given that the economic performance,

household income changes over time, they make certain assumptions about cost, dernand

and possible margin and selling prices. The students will hire two part$-$time workers to operate

the business. Based an the research, they expect to sell $1600$ shakes per month with the

projected selling price of $15$ SAR and the variable cost is expected to be $25\%$ of the selling

price. To set up the business, the students have to rent Shack which will cost SAR$5000$ per

month. The follawing are costs related to the operation of the business.

i$)$ Using above information calculate the number of milkshakes they should sell in order

to have break$-$even. If you are expecting to have monthly profit of SAR$30,000$ how

may shakes you have to sell per manth?

ii$)$ Now assume that both selling price and variable cast increase by $15$ percent what

should be the break$-$even sale to cover the cost.