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PM Chapter 8 Questions Cost Volume Profit Analysis
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Sir,
In Ques 1
Target Profit = $60,000
Fixed cost = $21600
So contribution be = 38400
But taking contribution amt = 81600
Kindly Explain
Contribution is the profit before fixed costs.
Given that the profit is 60,000 and that is after charging fixed costs of 21,600, the contribution must be 81,600.
Hi, in question 4, in product X why was profit added to fixed cost to get contribution. i though contribution is selling price less variable.
Sorry, I forgot about the other variables.
Hi sir, u have helped me a lot in my acca journey, i just wanted to thank u
I got confused with “a multi-product breakeven chart may be drawn only if the constant sales mix is assumed”. I thought it can be drawn based on the sales of the most profitable product first and downwards which does not really need to be in a constant mix.
The wording is confusing. Although a chart can be drawn as you describe, strictly it is not then called a multi-product break even chart.
Hello i had to confirm, is it because the breakeven points would be varying(not a unique BEP) if the constant sales mix are not assumed and so ‘break-even chart’ is not possible?
Question
To achieve a target profit, we will use contribution in formula or C/S ratio.
target profit = Fixed cost + target profit / contribution or c/s ratio?
for both single product and multi product.
Appreciate your feedback.
I don’t know which formula you are referring to, but it depends on the information given in the question.
For multi-product CVP it depends on whether or not the products are to be made in the same ratio as budgeted.
Have you watched my free lectures on all of this?
Great Test questions Sir ! I got 100%. The most tricky part of the questions are, If we are given the C/S ratio Like 30% & the variable cost is 28, the variable cost will always be the remainder of the % of C/S ratio. In this example the VC should be 70%. This is how I solved the 2 tricky questions. But great Test to learn. Thanks ! ????
sorry sir, can you tell me what product sale mix is?
The way the total sales are mixed between the different products.
i dont get the point of number 3 . why we cant do individual product profit volume chart against the breakeven sales volume ? we have done on the lecture the breakeven chart with out sell mix, which we do ithe graph by using individual product,
That was a breakeven chart – not a profit volume chart,
Hello Sir. my question is related to question number 4. Why did we remove the 6,000 fixed OH? Since its fixed, isn’t it supposed to be accounted for?
And why did we add the 2.88 to the contribution?
I assume that you are referring to the last part of the question (when we are making the products in order of their CS ratios).
If so, we didn’t subtract 6,000 anywhere. We subtracted 8,000 fixed overheads to arrive at the contribution as soon as we made the first product. We didn’t subtract any more fixed overheads but just increased the contribution as we made further products.
We did not add 28,800 to the contribution. When we made the third product (V) we added the extra contribution of 33,400 (0.87 per unit). The 28,800 was the extra sales revenue (6.00 per unit) because the question also wanted to know the revenue.
Respected Sir ,
Thank you
I love the way you are teaching and support.
I did not understand point number 1.
What its means by saying (against breakeven sale volume)?
I assume that you are referring to question 3.
All of the first statement does not really make any sense, which is why it is untrue 馃檪
Sir, my knowledge is that Margin of Safety = Budgeted sales-BREAKEVEN POINT/Budgeted sales. Where BREAKEVEN POINT =Total fixed cost/contribution
Why did you use BREAKEVEN sales revenue(fixed cost/CSratio) instead of BREAKEVEN POINT?
I’m referring to question 5
You will get exactly the same answer for the margin of safety whether you use units or $’s revenue. Since the question asked for the breakeven revenue it is faster to calculate the margin of safety on the revenue instead of on the units.
Sir please can you help me with Question 1. i don’t understand why the variable cost per unit was divided by the 70% of sales to get the selling price per unit.
The contribution is 30% of the sales. Given that the contribution is the sales less the variable costs, it means that the variable costs must be 70% of the sales.
In question 2 , Is there a missing of per unit in variable cost ?
Otherwise it may then refer to total variable cost.
It is per unit (it could not possibly be the total cost 馃檪 )
hi sir ,
in question 4, i used a different approach but i arrived at the same answer. kindly advice if it right to use this.
1. found total Total variable cost= 8.40 +3.60+ 1.44= 13.44
2. contribution for x , which is sales less total variable cost = 24-13.44 = 10.56
3.found budgeted fixed cost for both x and y = (2.88×10,000) +(2.4 x 12500) = 58800
4 Fixed cost when producing x only is 58800 – 6000 = 52800
5.if b represents the total number of units that is needed to be produced inorder to get a target profit of 144,000
then
(10.56 x b) – 52800 = 144000
10.56b = 144000+ 52800
10.56b= 196800
b = 196800/10.56
b=18636.6 units of x produced
Yes – your approach is fine 馃檪
Thanks soo much.
hi john
in question 5.
we see that the solutions says (25 X 100,000) gives 2,500,000 how possible is that sir
But 100,000 x $25 does equal $2,500,000 !!
apologies my error