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Thank you for your excellent lectures
I was going through a couple of BPP question and solution but couldnt understand why the calculation of break even units differ as when question provides product mix ratio, BEP units is multiplied by proportionate ratio or when budget sales are given, BEP units is divided by proportionate sales figures.
For example in Activity 4 of BPP text (page 129 of text incase same is available with you), the question states Budget Sales for products are F – 2000, B – 4000 & R – 6000,
In solution, break even point is calculated and then the same is divided by the proportion of units given in budget sales
Say breakeven arrived is 6923 units so for F, units are 6923 * 2000/12000 = 1538 unitsFor example in Illustration 1 of BPP Text (page 128 of text incase same is available with you), where question states that for every 5 units of product M sold, 1 unit of product N will be sold
In solution, break even point is calculated and then the same is multiplied by the proportion of units given in ratio
Say breakeven arrived is 1169 units. So to arrive at each individual units, it is calculated as M – 1169 * 5 & for N – 1169 * 1I shall appreciate your support
I don’t have a textbook so from what you have said above:
The calculation of break-even units can differ depending on the information provided in the question.
When the question provides a product mix ratio, the break-even units are multiplied by the proportionate ratio.
This is done to allocate the break-even units among the different products based on their respective sales ratios.Activity 4 of the BPP text, the break-even point is calculated, and then it is divided by the proportion of units given in the budget sales.
This ensures that each product’s break-even units are allocated based on its proportionate share of the total budget sales.Similarly, in Illustration 1 of the BPP Text, where the question states that for every 5 units of product M sold, 1 unit of product N will be sold, the break-even point is calculated, and then it is multiplied by the proportion of units given in the ratio.
This ensures that the break-even units for each individual product are calculated based on their respective ratios in the sales mix.
These different approaches are used to accurately allocate the break-even units among the different products based on their relative sales contributions or ratios.
Thank you for trying to make me understand but due to my lack of ability, I am still not clear with the concept and shall deeply appreciate your help
Based on above understanding especially illustration 1 noted above, I went ahead and tried solving (additional) break even point for Activity 5 in the BPP text. Here the question says the product are sold in ratio of 3 : 4 : 5.
I calculated B.E.Revenue as 2,103,231. I then allocated it to individual product in ratio of revenue mix (405:660:1100) and got individual products revenue. Then I divided this individual product revenue by revenue per unit and got individual B.E.P as 2914 & 3886 & 4857.
I tried to verify this B.E.P of individual product through alternative approach. I got average contribution per mix as 81.4917, so dividing Fixed cost of 950,000 by avg contribution, I received B.E.P (mix) = 11658. Now according to the logic of ratio and mix being given in question, ideally B.E.P for individual products should be B.E.P (mix) muliplied by individual ratio but instead I notice that here again, the B.E.P is arrived by dividing the mix by ratio.
Totally confusing..
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