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A company has a fixed costs of $1.3 m. Variable costs are 55% of sales up to a sales level of $1.5 m but at higher volumes of production and sales, the variable cost for incremental production units falls to 52% of sales.
What is the BEP in sales revenue?
– The answer is $2,802,000
-How to get this answer? The working in the book is a bit difficult to understandThanks.
For sales of 1.5M, the contribution will be 45% x 1.5M = 0.675M.
For breakeven the contribution must equal the fixed costs of 1.3M.
Therefore extra contribution of 1.3 – 0.675 = 0.625M is needed.Therefore the extra sales revenue needed = 0.625/0.48 = 1.302M
Therefore total breakeven revenue = 1.5 + 1.302 = 2.802M
If the variable cost is 48% of the sales, then the contribution must be 100 – 48 = 52% of sales.
Sir, I am totally unable to understand this question, my mind stuck. I saw the answer but not satisfied. please explain the answer of this question.
thank you
Beauty Co makes two products, nail polish and lipsticks.
Nail polish sales make up 30% of total sales and their variable costs are 45% as a percentage
of sales value.
Lipsticks sales are 70% of the total sales and their variable costs are 40% as a percentage of
sales value.
Total fixed costs are $400,000 for the company.
Required:
What is break-even level of sales revenues for the company?A company has a fixed costs of $1.3 m. Variable costs are 55% of sales up to a sales level of $1.5 m but at higher volumes of production and sales, the variable cost for incremental production units falls to 52% of sales.
What is the BEP in sales revenue?
in this question I did not understand that why u took extra contribution 1.3 – 0.675 = 0.625M and why after this 0.625/0.48 = 1.302M. Not understanding
Have you watched the free lectures on CVP?
For breakeven the total contribution must equal the fixed overheads of 1.3M
When sales revenue is 1.5M, the contribution is 0.675M, and therefore to get a total contribution of 1.3M then need an extra 0.625M
To get the extra sales revenue needed, we then divide by the CS ratio as normal.
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