Suggestions

Dear John,

I am very thankful for your lectures, I learnt a lot from your explanations, but when I do Book Revision Kit there are different kind of questions. I want to suggest you alongside with your notes maybe it would be good for us you just to add one more example from Revision Kit. I want to show you one example that looks very simple but it was too hard for me to solve that one.

E.X.

A company produces and sells a single product. Budgeted sales are $2.4 million, budgeted fixed costs are $360,000 and the margin of safety is $400,000. What are budgeted variable costs?

A $1.640 million
B $1.728 million
C $1.968 million
D $2.040 million

Maybe it sounds very easy but the technic of solving this problem is way too complicated.

The correct answer is: $1.968 million
Breakeven sales = $(2.4 million – 400,000) = $2,000,000
Contribution at this level of sales = $360,000. Therefore contribution/sales ratio = 360,000/2,000,000 = 18%
Variable costs = 82% of sales. At a sales level of $2.4 million, variable costs = 82% × $2.4 million = $1.968 million

Please get me right, I am not trying to say that your lectures are useless, just want to understand how more complicated cases are done.

Best regards