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p co makes 2 products p1 and p2 budgeted details of which are as follows
p1 p2
selling price 10 8
cost per unit
direct material 3.5 4
direct labour 1.5 1
variable overhead .6 0.4
fixed overhead 1.2 1
profit per unit 3.2 1.6
budgeted production and sales for the year ended 30 november 2015 are
p1 10000 units
p2 12500 units
the fixed overhead costs include p1 relate to appotionment of general overhead costs only. however p2 also includes specific fixed totalling $2500
if only p1 were to be made, how many units would need to be sold in order to achieve a profit of 60000 each year?
could you explain the calculation of contribution per unit of p2, please.The contribution per unit from P2 is the selling price less the variable costs.
So 8 – (4 + 1 + 0.4) = 2.6 per unit.
Although I am not sure why you want this, since it is irrelevant for answering the question as you have typed it.
I do not have the Kaplan book – only the BPP Revision Kit.
Either you have mistyped the question, or you have misunderstood the answer, or there is a mistake in the Kaplan answer, because the contribution per unit for P2 is $2.6 as I explained before.
(Check on the Kaplan website to see if it is on their errata page).However, again, the contribution per unit for P2 is of no relevance for answering the question as you have typed it, so I am surprised if Kaplan have included it in their answer.
If only P1 is to be made, then the total fixed overheads will be (10,000 x $1.20) + (12,500 x $1) – $2,500 = $22,000.
Therefore, to make a profit of $60,000, they need a contribution of $82,000.The contribution for P1 is $4.40 per unit.
Therefore they need to sell 82,000/4.40 = 18,636 units of P1.
I suggest that you watch my free lectures on CVP analysis (and on relevant costing).
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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