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(September 2016, Q2)
A company makes and sells product X and product Y. Twice as many units of product Y are made and sold as that of
product X. Each unit of product X makes a contribution of $10 and each unit of product Y makes a contribution of
$4. Fixed costs are $90,000.
What is the total number of units which must be made and sold to make a profit of $45,000?
A 7,500
B 22,500(Answer)
C 15,000
D 16,875I can answer this question correctly. Just take the fixed cost plus profit and divided by the WA C/S ratio.
($90,000+$45,000)/6=$22,500
BUT…………………..this rule seem like does not apply to question below.
[Extract from examiner report March2019 Example 1]
A company makes two products with the following characteristics:
Product X Product Y
Contribution to sales ratio 0.3 0.5
Selling price per unit $3.00 $4.80
Maximum demand 8,000 units 3,000 unitsFixed costs are $9,000.
What is the minimum revenue required for production to break even?
A $20,400 (True answer)
B $25,800
C $29,400
D $24,000 (My answer)If I follow the above rule, i will get $24,000 ($9,000/0.375).
I did read the examiner report and i just wonder what makes these two questions different.
The first question tells you what ratio the products are to be sold in.
The second question does not say that they have to be sold in any defined ratio. Therefore in order to breakeven as soon as possible they will produce and sell Product Y first because it has the highest CS ratio, and then produce and sell Product X until they reach breakeven.
Have you watched my free lectures on CVP analysis?
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