Before calculating, underline the word that tells you which figure is wanted: profit, contribution, break-even or cash. The eight questions below use invented businesses.
They practise the lessons in profit, cost and cash are different questions. For a timed session, use the timed original practice session builder.
Questions
Q1. A business sells goods for RM9 000 on credit, pays RM5 000 cash for them, and the customer pays next month. State the profit and the cash effect this month.
Answer
Profit = 9 000 − 5 000 = +RM4 000. Cash effect this month = −RM5 000, since no cash has been collected yet.
Q2. Product C sells 400 units at RM50. Materials are RM12, labour RM10 and variable overheads RM3 per unit.
The fixed items are rent RM4 000 and salary RM2 600. Find total contribution and profit.
Answer
Variable items = 12 + 10 + 3 = RM25. Contribution per unit = 50 − 25 = RM25.
Total contribution = 400 × 25 = RM10 000. Fixed costs = 6 600. Profit = 10 000 − 6 600 = RM3 400.
Q3. Find the break-even units for Product C. Capacity is 240 units. Is break-even feasible?
Answer
Break-even = 6 600 ÷ 25 = 264 units. Capacity is 240, which is lower, so break-even is not feasible.
Q4. If the fixed items fall to RM5 600, is break-even feasible with capacity of 240 units? What is the margin of safety at capacity?
Answer
Break-even = 5 600 ÷ 25 = 224 units, below 240, so it is feasible.
Margin of safety at capacity = 240 − 224 = 16 units, which is a thin cushion.
Q5. Sales are March RM16 000 and April RM20 000. 25% are cash, and 75% are collected the month after. Find April receipts.
Answer
April cash sales = 25% × 20 000 = RM5 000. March credit collected = 75% × 16 000 = RM12 000.
April receipts = RM17 000.
Q6. A cash budget lists: depreciation RM500, owner’s drawings RM800, loan instalment RM1 000, and a bad debt written off RM200. Which go in the cash budget payments?
Answer
Drawings and the loan instalment are cash paid, so they go in. Depreciation and a bad debt written off involve no cash leaving in that month, so they stay out.
Q7. A business shows profit of RM6 000 but cash fell by RM2 000. Give two reasons using figures of your own choosing.
Answer
A model answer: “Credit sales of RM5 000 were not yet collected, and the business bought equipment for RM3 000 cash. Profit of RM6 000 less RM5 000 and RM3 000 gives a fall in cash of RM2 000.”
Any two causes with a figure and a stated effect on cash are acceptable.
Q8. Product D sells at RM20, uses RM12 of variable items, RM3 200 of fixed items and capacity of 500 units. Decide whether break-even is feasible and give the profit at capacity.
Answer
Contribution = 8. Break-even = 3 200 ÷ 8 = 400 units, which is below 500, so it is feasible.
Profit at capacity = 500 × 8 − 3 200 = RM800.
If you got these wrong
Timing slips (Q1, Q5, Q6, Q7) go to why a profitable business can run short of cash and cash budgets without double counting receipts.
Contribution and feasibility slips (Q2, Q3, Q4, Q8) go to separating contribution from profit and testing break-even against capacity.
For a teacher to mark your working, see online one-to-one Accounting tuition.