One of the roles of financial management is to assist businesses to choose lowrisk investments
while ensuring higher returns. This idea is the foundation and held as a way to maintain and
maximise the shareholders wealth or bondholders profits. The following is an extract of
information from two companies: Cynored Pty Ltd and CB Electricity Pty Ltd respectively.
Cynored Pty Ltd CB Electricity Pty Ltd
Electricity Units Produced and Sold
Amount $ Amount $
Revenues
Total Costs
Variable Costs
Fixed Costs
Net Operating Income
Required:
i You are required to find the breakeven point for each company in Units marks
ii Calculate the degree of operating leverage for each company at units marks
iii. Comment on the differences that you observe between these companies breakeven
points and degree of operating leverage marks
iv Based on the information on this question, how can the managements of Cynored Pty Ltd
and CB Electricity Pty Ltd use marginal costing in improving the fortunes of their
companies? marks
