Hi, brilliant lecture as always. So effectively in a basic manufacturing business where sales made = units products (i.e. no closing inventory) the GROSS PROFIT is actually TOTAL CONTRIBUTION and OPERATING PROFIT is the $200 in Example 1 (i.e. the FIXED COSTS are Admin expenses) right? I’m just trying to understand how these would be reflected on Financial Statements

If the fixed costs are non-production costs, then what you have written is correct. However the fixed costs could be production costs and if this was the case then both the gross profit and the operating profit would be 200.

Thanks John for this brilliant presentation. However, from the graph, you used 500 units as the maximum output for the horizontal axis (x) instead of the budgeted sales and production of 300 units why? The same issue for the vertical axis (y) with a maximum value of $3,000 rather than $1,800 (300 x $6).Or was it done for illustrative purposes? Is it possible to read off contribution, variable cost and margin of safety from the graph? So the profit volume chart/graph can be drawn using the calculated BEP of 250 units and/or profit of $200 ((300 x $4 – $1,000 FC)

It was simply to end up with a reasonably sized graph – there are no ‘rules’ about this 🙂

But do appreciate that you cannot be asked to draw the graph yourself in the exam. However you must understand it because one could be drawn in the question itself and you could be expected to interpret it.

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sitina says

Hello mr. Jone, please assist me to solve this question.

Product chair Table

Variable cost/unit$ 120 16

Contribution sales ratio 0.4 0.6

Annual fixedcost $ 100000

What is break-even point in sales revenue (to the nearest hundred dollar)

A $ 210,500

B $ 178,60

C $ 200,000

D $ 204,500

lungudanielaiuliana says

Hi, brilliant lecture as always. So effectively in a basic manufacturing business where sales made = units products (i.e. no closing inventory) the GROSS PROFIT is actually TOTAL CONTRIBUTION and OPERATING PROFIT is the $200 in Example 1 (i.e. the FIXED COSTS are Admin expenses) right? I’m just trying to understand how these would be reflected on Financial Statements

John Moffat says

If the fixed costs are non-production costs, then what you have written is correct.

However the fixed costs could be production costs and if this was the case then both the gross profit and the operating profit would be 200.

kabwerichard says

Good refreshing lecture and as usual clear explanations.

John Moffat says

Thank you for your comment 🙂

alie2018 says

Thanks John for this brilliant presentation. However, from the graph, you used 500 units as the maximum output for the horizontal axis (x) instead of the budgeted sales and production of 300 units why? The same issue for the vertical axis (y) with a maximum value of $3,000 rather than $1,800 (300 x $6).Or was it done for illustrative purposes? Is it possible to read off contribution, variable cost and margin of safety from the graph? So the profit volume chart/graph can be drawn using the calculated BEP of 250 units and/or profit of $200 ((300 x $4 – $1,000 FC)

John Moffat says

It was simply to end up with a reasonably sized graph – there are no ‘rules’ about this 🙂

But do appreciate that you cannot be asked to draw the graph yourself in the exam. However you must understand it because one could be drawn in the question itself and you could be expected to interpret it.

alie2018 says

Okay Sir noted