Dear Sir, Quiz question number 1, chapter 8 Cost Volume Profit . Selling price per unit is 28/70%. Please can you explain calculation for 70%? thank you

The CS ratio is 30%. Given that the contribution is the selling price less the variable costs, then for every $100 the contribution is $30 and the variable costs must be $70, or 70% of the selling price.

If the variable cost is $28 and this is 70% of the sales, it means that the selling price must be 28/70%.

Hello Sir, In the above question we after calculating breakeven revenue = total fixed costs/ Weighted average CS ratio which gives the answer $26,402. my doubt is if after finding breakeven revenue we are asked to find breakeven units for each of the three products. How do we do it?

Respected Sir, in multi-product cvp analysis, when we’re trying to figure out the effects of selling products in preference to each other, we rank them according to their C/S ratios and not the contributions they’ve generated. Why is that the case? For example, if there are three products X whose contribution p.u. = $8 , C/S ratio =0.45, Y’s cont. p.u.=$6 , C/S ratio=0.5 and Z whose cont.p.u,=$3 , C/S ratio=0.33 why shoudn’t we produce X first? It generates the highest contribution per unit, so selling it first should make us reach the breakeven point even quicker and the if we ramp up its sales then we’ll be more profitable. But as the rule goes, we should produce Y first then X because it has the highest C/S ratio.

Ameerul96 says

Hello,

Just want to confirm, initially we get breakeven revenue at 26,402

At the end of the lecture, why suddenly our breakeven revenue change to 23,400? When we want to see if it is close to new breakeven which is 21,108.

Is it a typo in the lecture of did i missed any calculation?

Thanks!

custard1 says

Dear Sir, Quiz question number 1, chapter 8 Cost Volume Profit . Selling price per unit is 28/70%. Please can you explain calculation for 70%? thank you

John Moffat says

The CS ratio is 30%. Given that the contribution is the selling price less the variable costs, then for every $100 the contribution is $30 and the variable costs must be $70, or 70% of the selling price.

If the variable cost is $28 and this is 70% of the sales, it means that the selling price must be 28/70%.

Md.Yusuf says

Hello Sir,

In the above question we after calculating breakeven revenue = total fixed costs/ Weighted average CS ratio

which gives the answer $26,402.

my doubt is if after finding breakeven revenue we are asked to find breakeven units for each of the three products.

How do we do it?

John Moffat says

It is because it is breakeven revenue that we are after.

noitiut says

Thanks a ton!

nethraaram says

Sir, what will be the sales unit at which the revenue will be zero?

John Moffat says

Zero!! Zero revenue means that they are not selling anything!!

noitiut says

Respected Sir,

in multi-product cvp analysis, when we’re trying to figure out the effects of selling products in preference to each other, we rank them according to their C/S ratios and not the contributions they’ve generated. Why is that the case?

For example, if there are three products

X whose contribution p.u. = $8 , C/S ratio =0.45,

Y’s cont. p.u.=$6 , C/S ratio=0.5 and

Z whose cont.p.u,=$3 , C/S ratio=0.33

why shoudn’t we produce X first? It generates the highest contribution per unit, so selling it first should make us reach the breakeven point even quicker and the if we ramp up its sales then we’ll be more profitable.

But as the rule goes, we should produce Y first then X because it has the highest C/S ratio.