A) CVP analysis help managers to take better decision.

a) CVP analysis help managers to take better decision. Justify with real life scenario.

b)     Paste Corporation has established new plant for the production of new product called “Diazinon”. There are two different manufacturing methods available to produce Diazinon.  Either by using a process or an order base method. The assembling technique won’t influence the quality or deals of the item. The evaluated manufacturing expenses of the two strategies are as per the following:

                                                                             Process base      Order base

Variable manufacturing cost per unit………………… Rs14.00        Rs.17.60

Fixed manufacturing cost per year ………………….Rs. 2,440,000  Rs. 1,320,000

 The organization’s statistical surveying office has suggested an initial selling cost of Rs.35 per unit for     Diazinon. The yearly fixed selling and admin costs of the Diazinon are Rs.500, 000. The variable selling and regulatory costs are Rs. 2 per unit.

Required: 

I.           CM ratio and variable expenses ratio. If Paste Corporation uses the:

1. Process base manufacturing method.

2. Order base manufacturing method.

II.     Break-even point in units and amount by formula method. If Paste Corporation uses the:

       1. Process base manufacturing method.

       2. Order base manufacturing method.

III.   Margin of safety. Assuming 250,000 units are actual sales for.

1. Process base manufacturing method.

2. Order base manufacturing method.

IV.            Degree or operating leverage at actual sales level for. 

1. Process base manufacturing method.

2. Order base manufacturing method.

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