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Fixed overhead:
-product 1 is $1.20
-product 2 is $1.00budgeted production and sales is:
-product 1 is 10,000 units
-product 2 is 12,500 unitsThe fixed overhead costs included in P1 relate to apportionment of general overhead costs only. However P2 also includes specific fixed overhead totalling $2500
-This is actually a long question but I am having some difficulties only with the fixed overhead.
-In the book, the working for Fixed overhead is as follows;
(1.2 x 10,000)+(1 x 12,500)-2500= $22,000*Why 2500 has been less?
-According to me,The total Fixed overhead for P2 is (1 x 12,500)=$12,500. This 12,500 represent the total FO of P2 which is a combination of specific FO+Not specific FO;therefore, there is no point of deduction the the $2,500.Please help me. Thanks
I can’t really answer without seeing the whole question.
However I would imagine that maybe they are stopping production of P2 in which case the total fixed overheads would remain the same (at 24,500) except for the fact that 2,500 of them would disappear if P2 were stopped, which would then leave them with only 22,000.
M produces and sells two types of sports equipment.
A batch of balls sells for $8 and has a variable cost of $5. Rackets sell for $4 per unit and have a unit variable cost of $2.60. For every 2 batches of balls sold, one racket is sold. Budgeted fixed cost is $407,000 per period. Budgeted revenue is $1,250,000.Calculate the margin of safety.
-Could you please help me to do this?
What you need to do is first calculate the revenue from 2 balls and 1 racket ($20). If you then divide by 3 you will have the average revenue per batch, and if you divide 1,250,000 by the average revenue per batch you will know how many batches are sold in total.
Then you need to calculate the average contribution per batch in a similar way. If you divide the fixed costs by the average revenue per batch you will then have breakeven batches.
Then the margin of safety should be easy for you 🙂
I do have followed your steps but has not obtained the answer.
In the book, the answer is $150,000 or as a percentage is 12%Please help.
If you have typed the question correctly then the answer is indeed 12% (but not 150,000 – it is 165,000).
Surely the book shows workings? If it is from one of the ACCA approved publishers then it certainly should!
Dear sir,
I do have watched your lectures concerning CVP but still have some difficulties in understanding c/s ratio. Could you give me a brief definition of it and the figure we obtain(which is 0.6666 in your example), what does it represent?Thanks.
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