Question 4: (20 Marks)

1. CVP Analysis and Cost Structure (Single Product). Riviera Incorporated produces flat panel televisions. The company has annual fixed costs totaling $10,000,000 and variable costs of $600 per unit. Each unit of product is sold for $1,000. Riviera expects to sell 70,000 units this year. Required:

1. Find the break-even point in units.
2. How many units must be sold to earn an annual profit of $2,000,000?
3. Find the break-even point in sales dollars.
4. Find the margin of safety in units. What amount of sales dollars is required to earn an annual profit of $ 500,000?
5. Find the margin of safety in sales dollars.
6. How much will operating profit change if fixed costs are 15 percent higher than anticipated?

Would this increase in fixed

(14 Marks)

2. Reliable manufacturing Company has been manufacturing its own widgets that are used in producing its final product. The cost of manufacturing 10,000 widgets is summarized below.

Direct materials	$20,000
Direct labor	16,000
Variable factory overhead	9,000
Fixed factory overhead	15,000
Total manufacturing costs	$60,000

A supplier offers to produce the widgets that Reliable Company needs for $6 per widget. If the company decides to buy from the supplier, 60% of the fixed factory overhead which represents depreciation and insurance costs will still continue. 40% will be avoided.

Should the company continue to make the widget or purchase it from the outside supplier? (6 Marks

QUESTION 5: (10 MARKS)

1. The Peter equipment company estimates its carrying cost at 15% and its ordering cost at $90 per order. The estimated annual requirement is 78,000 units at a price of $40 per unit.

Required: (6 Marks)

(i). What is the most economical no. of units (EOQ) to order? (ii). No. of orders to be placed in a year.

2. Explain the importance of controlling material cost, using EOQ, ABC analysis and JIT tools. (4 Marks) (300 words)