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EC Ltd produces and sells the following two products throughout the year in a constant mix:
Product X Product Y
Variable cost per $ sales $0.45 $0.6
Fixed costs $1212,000 per periodThe management of EC Ltd has stated that total revenues will reach a maximum of $4,000,000, and is generated by the two products in the following proportions:
Product X Product Y
Variable cost per $ of sales 70% 30%Required: calculate breakeven sales revenue based on the sales mix assumed above.
I just need to know, is my way of solving the question right?
Kits Solution is:
Breakeven revenue = 1212000/ 50.5%
Breakeven revenue = 2,400,000
Working:
Average contribution to sales ratio ( on a $100 total sale basis)
X Y Total
Sales $70 $30 $100
Contribution $70*0.55 $30*0.4 $50.5Average contribution to sales ratio: $50.5/$100 = 0.505
My answer is:[/code]
Product X:
Sales: 2800000 (4000000*70%)
VC : 1260000 (2800000*$0.45)
= 1540000Product Y:
Sales: 1200000 (4000000*30%)
VC : 720000 (1200000*0.6)
= 480,000Weighted average C/S ratio; 1540000+480000/4000000 =0.505
Breakeven revenue = 1212000/0.505 = $2400000
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