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BM6023

TESTING 123

CASE 1

MBA students plan to open up a gymnasium at UMS Sport Complex to support


their friends to pay study fee. The approval from the Office of Student Affairs (HEP)
is expected to be obtained in November 2011 and the operation will be
commenced in December 2011. The targeted clients are UMS students and staff
based on a service charge of RM4.00 per hour. The operation cost of the
gymnasium is expected to be as follows:

Variable costs (an hour service per head): RM


- Overhed (electricity & water) 1.20
- Labor (wage for outside coach) 0.80
- Material (vitamin and supplementary) 0.25
Total variable costs 2.25

Monthly cost for the gymnasium:


- Rental for the space for gymnasium 1,500.00
- Salary for staff 2,400.00
- Depreciation for gymnasiums equipment 800.00
- Promotion & advertisement 900.00
- Administration and general expenses 640.00
Total monthly fixed cost 6,240.00

Based on a discussion with UMSs sport officer, Mr. Jaipong, the demand for
gymnasium service is expected for the month of December 2011 as follows (for
students and staff):

Number of days in operation per month 28 days


Expected number of client per day 60 head
The average number of hour of usage per head 3
hours
Total number of hours of gymnasium usage along the
month of December 2011 5,040 hours

Based on the above information:


a. How much is the operational income for the gymnasium for the month of
December 2011?
(5 marks)

b. How much the contribution margin per unit (hour) of service?


(5 marks)

c. How many unit (number of hour) of service is to be sold to achieve breakeven


point in December 2011, and how much is the value of that sale in RM?
(10 marks)

d. Mr. Norali, as a managing Director of the Gymnasium, have held a meeting


with his members of management team. They came to a decision that a
more agressive promotional package has to be launched to increase the

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number of daily client by 20 (twenty) percent. However this strategy will
require an additional monthly fixed cost amounted to RM1,000.00 for
promotional activities. By considering the new operational income, if the
suggestion were to be implemented, state your opinion on such a strategy.
(25 marks)

e. Calculate the number of hour of the service that need to be sold by the
Gymnasium if breakeven point is to be achieved, if the above (d) is to be
implemented.

(10 marks)

CASE 2
Sport Science Association of UMS is organizing Sabah international marathon, Kota
Kinabalu to Kundasang, in December 2010. The expected participants are locals
and some international runners. Miss Lesley, as a project director has organized a
meeting among the committee members and the following organizing costs are
estimated:

Per head cost of participant:


- Participants food and drinks RM12.00
- Participant t-shirt RM40.00
- Operational cost RM 8.00
- Insurance and medical cost RM 5.00

Other organizing costs:


- Administrative cost RM25,000.00
- Promotion and advertisement cost RM35,000.00
- Cash prize and token of appreciation RM40,000.00

Each of the participants will be charged RM180.00 participation fee. Based on the
previous organizing record and information provided by the Ministry of Youth and
Sport, the organizer could set a target for 250 international participants. However
the number of participant is influenced by the aggressiveness of the promotional
activities.

Required:
a. Calculate the required number of participant to achieve breakeven point for
the above marathon event.
(5 marks)

b. Mr. Nitas, a son of a prominent local public figure, as the treasure of the
organizing committee plans to obtain a cash sponsorship from a local
manufacturing company of isotonic drink amounted to RM30,000.00. As a
return the organizer agrees to print the companys logo on the participants t-
shirt at an additional printing cost RM3.50 per unit. Calculate the organizing
profit or loss is the plan is to be executed.
(20 marks)

c. In the second meeting Miss Wong as a director of promotion suggested that


the international participants should be charged a higher participation fee,
RM250.00. She is confident that at that level of participation fee the targeted
number of 250 international participants is still achievable since they are the
regular participants for such kind of event in Malaysia. Without considering

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the above Mr. Nitas suggestion (Section b), assist Miss Wong to calculate the
number of required local participant for the organizer to achieve breakeven
point based on her suggestion.
(20 marks)
Case 1

a) Total Sales = 5040 x 4 = RM 20160.00


Total Variable Cost = 5040 x 2.25 = RM 11340.00
Contribution Margin = RM (20160.00 11340.00) = RM
8820.00
Fixed Cost = RM 6240.00
Operational Income = RM (8820.00 6240.00) = RM
2580.00
b) Contribution Margin = RM (4.00 2.25)/hour = RM1.75/hour
or Contribution Margin/Operational Hours = RM (8820/5040) = RM 1.75
c) Sales Revenue Variable Expenses Fixed Expenses = Profit
4X 2.25X 6240 = 0
X = 3566 hours
Total Sale for 3566 hours;
RM 4.00/hour x 3566 hours = RM 14264.00
d) If the number of daily client were to be increased by 20%, the number of
hours of operation in a month (with reference to Dec 2011 projection) would
be 72 clients. The new fixed cost for the gym would be 7240 hours. The
total number of hours of gym operation is 6048 hours and operational
income is RM 3344. Contribution margin remains the same. To achieve the
new operational income, the additional fixed cost for advertising would be
necessary to increase its market coverage and enhance service awareness
among UMS students and staff. Since the fixed cost has been increased, the
time to achieve breakeven will be prolonged since theres no changes in
service charge and variable cost per unit hour.
e) 4X 2.25X 7240 = 0
X = 4137 hours

Case 2

a) 180X 65X 100000 = 0


X = 870 participants
b) Total Sales Variable Expenses Fixed Expenses = Profit
Sales = 870 participants x RM180/participant = RM 156600
Sponsorship = RM 30000
Total Sales = RM (156600 + 30000) = RM 186600
Variable Expenses = 870 participants x RM 68.50/head = RM 59595
Contribution Margin = RM (186600 59595) = RM 127005
Fixed cost = RM 100000
Profit = RM (127005 100000) = RM 27005
c) Breakeven Point = Total Sales Variable Expenses Fixed Cost = 0
Total Sales = RM180x + RM (250x250) = 180x + 62500
Variable Expenses = RM65.x + RM (250x65) = 65x + 16250
Fixed Cost = RM 100000

180x + 62500 65x 16250 100000 = 0


x = 467 = required number of local participants

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