THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA SKILLS LEVEL EXAMINATION - MANAGEMENT INFORMATION QUESTION: COST-VOLUME-PROFIT ANALYSIS Kenechukwu Manufacturing Limited (KML), located in Aba, Abia State, produces and sells a single standardized plastic packaging container used by pharmaceutical firms across Nigeria. The selling price and cost structure for the current year ending 31 December 2024 are as follows: Selling Price per unit: ₦2,500 Direct Materials per unit: ₦800 Direct Labour per unit: ₦500 Variable Production Overheads per unit: ₦200 Fixed Production Overheads (total per annum): ₦12,000,000 Fixed Selling & Administrative Expenses (total per annum): ₦6,000,000 The budgeted sales volume for the year is 25,000 units. REQUIRED: (a) Calculate for Kenechukwu Manufacturing Limited: (i) Break-even point in units and sales value (₦). (ii) Margin of Safety in units, sales value (₦), and as a percentage of budgeted sales. (iii) Budgeted net profit for the year. (6 Marks) (b) The Managing Director is evaluating two mutually exclusive proposals for the upcoming financial year: Proposal 1: Reduce the unit selling price by 10% which is expected to increase sales volume by 25% over current budgeted sales. Proposal 2: Upgrade factory automation at an additional fixed operational cost of ₦4,000,000 per annum, which will reduce direct labour cost per unit by 20% while maintaining the current unit selling price of ₦2,500. Evaluate both proposals and advise management on: (i) The resulting profit or loss under Proposal 1. (ii) The required sales volume (in units and value) under Proposal 2 to maintain the current budgeted net profit calculated in (a)(iii) above. (8 Marks) (c) Explain FOUR key assumptions underlying Cost-Volume-Profit (CVP) analysis and discuss how any TWO of these assumptions may limit the practical usefulness of the advice provided to KML management. (6 Marks) (Total: 20 Marks)