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July 19, 2022 at 5:22 pm
As you stated that the avg. CS ratio cannot be calculated by taking the average of individually calculated CS ratio of 3 products. However, in answer section of the page it is mentioned that “Alternatively, the average CS ratio may be calculated by taking the weighted average of the individual CS ratios, weighting by the budgeted sales revenues”. Apparently there seems to be contradiction in these two. Can you help me understand that please.
John Moffat says
July 19, 2022 at 5:28 pm
What I actually say is that you cannot take the ‘normal’ average (i.e. simply add up three of them and divide by 3).
Obviously you can take a weighted average, weighting by the sales revenue, and get exactly the same result because it is doing the same thing as I do in the lectures (but doing that normally takes longer).
July 19, 2022 at 9:30 am
Sir, these formulas will also be given in exam? Break-even volume formula, margin of safety, C/s ratio etc.
July 19, 2022 at 4:22 pm
No. The only formulas that are given in the exam are those listed on the formula sheet in our free lecture notes.
April 9, 2022 at 11:38 am
Thanks John for your details explanation. But I do not understand when the question asking the breakeven of sales in selling three products, why do we need to consider the highest CS ration product instead of the other products?
April 9, 2022 at 2:23 pm
Because doing the one with the highest CS ratio first will mean that the reach breakeven the fastest.
April 11, 2022 at 6:06 am
oh got it, thanks John. 🙂
April 11, 2022 at 8:00 am
March 3, 2022 at 5:22 pm
thank u very much sir, also i dont get the point when u say that…. the C/S ratio is sometimes called the profit to volume (or P/V ratio)]
March 4, 2022 at 7:35 am
It is simply a fact that the CS ratio is sometimes referred to as the PV ratio.
March 2, 2022 at 8:31 am
sir thank u for ur time. what is the use of margin of safety use in reality and how can we evaluate and analyze it when we see its percenatge
March 2, 2022 at 5:33 pm
It is incredibly useful in reality. If it is small then there is a big risk of making a loss and a company might decide not to take the risk.
November 5, 2021 at 8:07 am
You said whatever happens there is 1000 fixed cost but you draw a line for 2000 total cost in the graph, i am not getting it.
November 5, 2021 at 9:00 am
The total cost is the fixed cost plus the variable costs.
April 8, 2021 at 9:00 am
Thaaankyou for the formula logics !!! Grateful.
April 8, 2021 at 9:46 am
You are welcome 🙂
December 15, 2021 at 9:42 am
Definetly!!!!! GOD IT MAKES SENSE.. I feel like I don’t want to use the formula.. I understand it now and feel better doing it the logical way.
December 15, 2021 at 4:07 pm
It is always better to understand rather than just learn formulas 🙂
October 13, 2019 at 1:40 pm
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
October 13, 2019 at 2:40 pm
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.
April 10, 2019 at 10:30 am
Good refreshing lecture and as usual clear explanations.
April 10, 2019 at 12:48 pm
Thank you for your comment 🙂
October 23, 2018 at 3:41 pm
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)
October 23, 2018 at 4:15 pm
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.
October 23, 2018 at 5:34 pm
Okay Sir noted
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