Reference no: EM132405340

Question

PY Sdn. Bhd. operates in an entertainment industry and one of its activities is to promote entertainment events throughout East Malaysia. The company is examining the viability of a fund-raising concert in Sabah.

Estimated fixed costs are RM180,000. These include the fees paid to performers, the hire of the venue and advertising costs. Variable costs consist of the cost of a pre-packed buffet which will be provided by a firm of caterers at a price, which is currently being negotiated, but it is likely to be in the region of RM10 per ticket sold. The proposed price for the sale of a ticket is RM30.

Required:

a. The number of tickets that must be sold to breakeven.

b. How many tickets must be sold to earn RM60,000 target profit?

c. What profit would result if 10,000 tickets were sold?

d. What selling price would have to be charged to give a profit of RM60,000 on sales of 10,000 tickets, fixed costs of RM180,000 and variable costs of RM10 per ticket?

e. How many additional tickets must be sold to cover the extra cost of billboard advertising of RM8,000? (assuming selling price and variable cost per unit are constant)

f. What is the profit-volume ratio?

g. With reference to part (a), what is the margin of safety given expected sales of 10,000 tickets?

h. Assuming that the caterer's charges will be higher per ticket if ticket sales are below 4,000 but lower if sales exceed 12,000 tickets, what is the relevant range? What does this term mean?

i. Discuss TWO (2) benefits of managers possessing knowledge / understanding of the cost-volume-profit analysis.