[Kwame7]

Consider the following information for a given business.
Sales revenue GHS 40,000
VC per unit = GHS 20
Activity level = 1,000 to break even
Required:
i. Determine the TFC. (1 mark)
ii. Express the contribution as a percentage of sales. (1 mark)
iii. The company plans to sell 1,500 units in the next period. What will be the percentage
Margin of Safety (MoS)? (1 mark)
iv. What margin should the business employ for planning purposes? (1 mark)
v. What total profit should the business expect in order to achieve its planned sales? (1 mark)
b. SHATTA MOVEMENT Ltd produces a single product. The company’s directors want to
explore new markets, and they require an accurate analysis of the firm’s cost structure for
both forecasting and pricing purposes. An attempt to provide this analysis from the
aggregation of individual costs has produced a poor correspondence between actual and
predicted costs. You are an accountant employed by SHATTA MOVEMENT Ltd, and
you have been asked to provide a statistical approach to the problem. The financial
director has given you the following data:
Period Output (units) Average unit cost
(GHS)
July 9,000 12.8
August 14,000 13
September 11,000 11.4
October 8,000 12
1November 6,000 13
December 12,000 11.7
You obtain the following further information:
? The costs from which the averages have been computed consist of the firm’s entire costs
for the relevant month.
? Fixed costs can be assumed to be unaffected by seasonal factors except for harmattan
heating. In July and August a supplementary heating system was employed; this cost
GHS 10,000 per month to operate.

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