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Dear Tutor / Students
Fred sells 2 products with selling prices and contribution as follows:
Product X
Selling Price: $40
Contribution: $10
Budgeted sales volume: 150,000Product Y
Selling Price: $20
Contribution: $4
Budgeted sales volume: 100,000Fred’s fixed costs are $1,400,000 per year.
What is Fred’s current breakeven revenue to the nearest $?A. $100,000
B. $5,894,737
C. $5,600,000
D. $200,000Correct answer is B.
Please could you let me know how to get to the correct answer as I’ve been struggling to solve this out. : (
Thank you very much. Radovan
In future, if you want me to answer then you must ask in the Ask the Tutor Forum.
First you need to calculate the overall CS ratio by calculating the total budget contribution and dividing by the total budgeted revenue.
Then to get the breakeven revenue you divide the fixed overheads by the overall CS ratio.
This is all explained in detail, with examples, in my free lectures on CVP analysis.
The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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