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May 14, 2021 at 7:41 am
In Notes, it is written that “the C/S ratio is sometimes called the profit volume (or P/V ratio).” I am facing difficulty in understanding it since the profit will be arrived after deduction of fixed cost. And in case of significantly higher fixed cost, may be we don’t get any profit. Despite that contribution turned out to be higher in that case. Can you please help me understanding this
John Moffat says
May 14, 2021 at 8:47 am
That is why PV ratio is a bad name for it – it doesn’t use the profit but used the contribution.
May 7, 2021 at 4:51 pm
hi, please with example 6d how did you get the sales revenue of 150,000 for the pv chart. thank you
February 2, 2021 at 1:43 pm
Hi john. thanks for the amazing lecture. was wondering if this is true always;
1) the product with highest CS ratio guarantee earlier profitability in the short term. therefore its favorable to sell individual products than selling all 3 randomly or jointly.
2) That any product that give a return that is enough to compensate the fixed cost earlier should always be sold first, inevitably that means the product has higher CS ratio.
3) When selling the three products together and when selling one after the other, the line of the two are parallel(in the pv chart).
February 2, 2021 at 1:51 pm
The first two points are true.
I am maybe misunderstanding what you have written in your third point, but although both charts would end in the same place, the lines are not parallel. When they products are sold one after the other, the line for each product has a different angle.
February 3, 2021 at 6:28 am
Thanks sir. in the third point i was asking the cumulative revenue-profit chart you plotted at the end look parallel to the charts you constructed in part D of example 6. will the cumulative graph be parallel(because of earlier breakeven) or a curve since both end at the same figure(136800,33400).
February 3, 2021 at 8:53 am
They are all straight lines, not curves, but they are not parallel to each other.
April 17, 2020 at 12:19 am
Hello John sir,
How are you?
I hope you are doing well,
Thank you sir for your appreciated time actually I do appreciate your effort please sir, could you calculate the breakeven in units first and what’s the selling price that we have to multiple to get breakeven revenues for example “6”?
Could you clarify by using numbers?
April 17, 2020 at 9:26 am
I don’t understand what you are asking, because I work through the whole example in the lectures and the selling prices are given in the question.
July 14, 2020 at 7:39 pm
as i understand he wants first to calculate break even units by:
(fixed cost/ (total contribution/total product unit))=(8000/(41400/21600))=4173.913 unit
revenue per unit= total revenue/ total unit= 136800/21600= 6.333
break even revenue= break even unit* revenue per unit= 6.333*4173.913=26434.78
November 11, 2019 at 10:45 am
Sir! Regarding break even revenue, in the last chapter you used contribution over C/S to get the sales. Does this mean in multi-product CVP analysis, we will be using Fixed cost over C/S to get the sales?
November 11, 2019 at 12:00 pm
is it because total contribution is equals to fixed cost?
November 11, 2019 at 12:09 pm
Yes, it is because at breakeven the total contribution is equal to the fixed costs 🙂
November 11, 2019 at 12:43 pm
Thank you so much! Sir.
November 11, 2019 at 3:31 pm
You are welcome 🙂
October 14, 2019 at 12:55 pm
I am particularly having issues with my final answer. I am always rounding off either too early or too late. For example BE (revenue) = $26 402 but I got $26437 ($8000/0.3026). I’m scared I will be penalized heavily in Section A and B which are corrected by the computer as either right or wrong. Do you have any suggestions for me. I thank you in advance.
October 14, 2019 at 2:23 pm
For most questions where there can be rounding problems, then either you are asked to type your answer to (say) the nearest $1,000 or the nearest $100, or otherwise the computer is programmed to accept a range of answers. So rounding is unlikely to be a problem 🙂
October 10, 2019 at 2:28 am
Dear John How Do you arrive at the break-even figure 23400?
October 10, 2019 at 7:29 am
Which part are you referring to? If you are looking at example 6 part (c), then the breakeven sales revenue is $26,400 (not $23,400) and is the fixed overheads of 8,000 divided by the CS ratio of 0.303
October 22, 2019 at 4:12 pm
I think Lucytan refers to a potential typo on the graph on minute 23:38.
August 28, 2019 at 7:58 pm
I am confused about Example 6 (c). You have calculated the Breakeven Revenue using the Breakeven Volume formula, which in the previous lecture was used to calculate the amount of units needed to breakeven. This was then multiplied by the selling price to give us the Breakeven Revenue.
In this lecture you have used the formula to calculate the Breakeven Revenue without multiplying by the average selling price. Should the 26,402 calculated have been units which were then multiplied to give us the Revenue or is there reason how we were able to Revenue from this from the formula – and if so how are we able to differentiate whether our answer should be in units or $.
August 28, 2019 at 8:08 pm
I have realised that we divided the by the C/S Ratio in this example and not the contribution/unit and that is why we are able to get the Revenue.
August 29, 2019 at 8:40 am
I am glad that you are clear now 🙂
June 26, 2019 at 7:22 am
Hello Mr John, Can you please elaborate why breakeven sales revenue for P is curve.
June 26, 2019 at 9:41 am
It isn’t a curve!!! 🙂
I can only assume that you are referring to the PV charts, in which case the graph is of the profit and is a straight line for each of P, C and V separately.
Did you watch the earlier lecture on CVP analysis first?
April 7, 2019 at 1:12 am
The graph on page 98 of the notes started the profit column as (10,000) but you have (8,000) being fixed cost in the question and in the video. Please is this a mistake? If not how did you arrive at the (10,000) on the horizontal axis?
Additionally, the scaling e.g P is sale 84,000 and profit of 23,800. I don’t understand how you arrived at the scaling in the graph answer on the notes, although the video did not put in the scaling. The calculation is clear, but I don’t understand the graph scaling in the notes please.
April 7, 2019 at 9:14 am
The graph should show the fixed cost as 8,000, not 10,000. The lecture is correct – it is just a typing mistake in the notes.
With regard to the scaling, you can use any scaling you want. Since the maximum total revenue is 136,800 and the corresponding cumulative profit is 33,400, then it makes sense to have the axes going up to these amounts. I just made them go up to the 10,000 above in each case.
(Obviously this is not a problem in the exam because you cannot be expected to draw the graph. You can be tested that you understand it, but in that case the graph would be already given to you in the exam.)
March 2, 2019 at 12:08 pm
Hi Mr John,can you explain how break-even revenue is fixed costs/cs ratio.
December 10, 2018 at 1:21 am
Hello dear john
I’v watched your lecture but i couldnt understand the logic of why do we calculate the avarage c/s ratio in this way and why we cant calculate its avarage in a normal way(sum of three ratios divided by three).
Would you please clarify this matter for me in an example 🙂
December 10, 2018 at 7:10 am
You can only ever take average by adding up and dividing by 3 if they all have the same chance of occurring.
Imagine you had 5 balls in a bag – one weighs 10 grams and the other four weigh 100 grams each. What is the average weight? You cannot saying it is (10+100)/2 = 55 grams!!!
It is the same idea here.
December 10, 2018 at 10:57 am
Thanks dear john…
November 11, 2018 at 5:23 pm
Sir i am a bit confused. Because of selling p first Did the break even of company changed from 26434 to 21108 or it is just that break even of 26434 is achieved earlier ?
November 11, 2018 at 7:44 pm
Breakeven occurs earlier – check the graph again 🙂
October 25, 2018 at 2:18 pm
If the company sell P only the profit would be $23,800. If both P and C are sold then the cumulative profit would be $29,800. The profit of the company is maximized at $33,400 by producing all three products.
October 25, 2018 at 3:41 pm
True (although remember that the main object of the exercise is to find breakeven).
October 25, 2018 at 2:08 pm
Thanks John. It is sensible enough to first sell P regardless of the fact that its C/S ratio is above the WACS ratio because P is generating the highest contribution per unit and in total in terms of sales revenue which is sufficient to cover fixed costs of $8,000 compare with C and V. The products are plotted individually on the graph with P first then followed by C and V. Selling P first will result in earlier breakeven at lower level of output than the normal breakeven point.
October 18, 2018 at 6:44 am
so basically, we know that selling p first helps us achieve breakeven more quickly because, p has the highest cs ratio.
is it also because if we sell p, we make a profit after deducting the fixed costs as well? (since we are making profit, we know that breakeven is is already achieved)
October 18, 2018 at 8:12 am
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