Sales Dollars

Campers Ltd is a new company which has recently been set up to specialise in manufacturing a new type of tent using a recently developed synthetic material.

The forecast sales from January to June 2018 are as follows. Production levels each month would be the same as the sales estimates.

Month Planned sales (units)
Jan 110
Feb 220
Mar 250
Apr 180
May 310
Jun 280

The sales manager predicts that the tents can be sold at a price of $400 each.

The costs of production of each tent are set out below:

Costs of production:

Per tent ($)
Cost of synthetic material 40
Poles and pegs 10
Cost of labour 65


Rent of factory premises $5,000 per month
Lease of machine $3,500 per month plus $13 per tent

In addition to the above costs, Campers Ltd also expects to incur other miscellaneous overheads of which the cost driver is based on units of production.

2018 Other miscellaneous overheads
Jan $6,400.00
Feb 7,820
Mar 8,900
Apr 7,000
May 11,380
Jun 11,500

The monthly fixed administrative and selling expenses are estimated to be $8,000.


(a) Using the high-low method, construct a cost formula for the other miscellaneous overheads. (6 marks)

(b) If Campers Ltd expects sales of 320 tents in July 2018,

(i) calculate the total production costs;
(ii) prepare a projected Contribution Margin Income Statement for the month.(16 marks)

(c) For the period January – June 2018, calculate:

(i) the contribution margin per unit;
(ii) the level of monthly sales (in units and dollars) required to break-even
(round off answer to whole number);
(iii) the margin of safety in sales dollars for April 2018.
(iv) operating income for the six months ending June 2018.

(12 marks)

(d) What is Campers Ltd.’s monthly break-even point in units if the selling price increases by 20%, the variable costs decrease by 10% and fixed costs increase by 25%?

What sales level in units is needed to earn a monthly operating income of $80,000?

(Round off answers to whole number). (8 marks)

(e) Briefly discuss four (4) underlying assumptions of cost-volume- profit analysis, making references to the information of Campers Ltd in your answers.

(8 marks)

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