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- This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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- March 6, 2017 at 8:11 pm #376070
n our course notes, we have specific guidance on how to calculate the break-even number of units for a firm selling a standard mix “bag.”
The formula I have been using is:
Fixed costs divided by the weighted contribution per standard mix. However, in the 2016 September paper, the solution involves:
Fixed costs divided by average weighted contribution per standard mix
i.e. rather than simply multiplying each product’s CPU by the number of times it is sold and then adding to get the total contribution per standard mix, the ACCA mark scheme does this and then divides the total standard contribution by the number of units sold, to derive an average standard contribution!?
Here’s the question and solution:
Question: A company makes and sells product X and product Y. Twice as many units of product Y are made and sold as that of product X. Each unit of product X makes a contribution of $10 and each unit of product Y makes a contribution of $4. Fixed costs are $90,000. What is the total number of units which must be made and sold to make a profit of $45,000?
Solution: Two units of Y and one unit of X would give total contribution of $18. Weighted average contribution per unit = $18/3 units = $6 Sales units to achieve target profit = ($90,000 + $45,000)/$6 = 22,500
What do you advise we do, stick to the course notes formula or use the one featured in the September 2016 paper?
If we do use the ACCA version, would this affect the calculation of the break-even revenue formula for standard mix sales from its current form Fixed Costs divided by Contribution to Sales Ratio – I can’t see how it would, but maybe I am missing something?
March 7, 2017 at 7:22 am #376154As you have written, in both my lecture and in the answer to the exam question, we divide the fixed costs by the weighted average contribution of the standard mix.
How you arrive at the average contribution does not matter, and depends on what information is given.
Usually we are told how many units there are of each (as in the lecture). In the exam question you do not know how many units there are – just that there are twice as many of Y as X. It does not matter how many units there are in total – whether in total it is 3,000, or 30,000 or whatever, the average contribution per unit will be the same if Y is twice as many as X. - AuthorPosts
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