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

HI i think question 5 is not totally right true the contribution need to equal to the fixed cost to break even but if i calculate the contribution using the cs ratio i end up with a contribution of $18.75 per unit the correct answer would be S.P=25,Contribution =21.25 and therefore a contribution of 3.75 per unit cs ration of 85%. Please correct me if i’m wrong.

I understand that 80000 is not the breakeven revenu but its the breakeven volume and in the example you gave in the lecture you use the breakeven volume not the breakeven revenu to get the margin of safety

But think about it – using volume and breakeven volume, and using revenue and breakeven revenue will result in exactly the same answer!! Try it and see 馃檪

Direct labour (i.e. labour actually producing goods) is a variable cost. However things like supervisors wages will be a fixed cost because they will not depend on the number of units produced.

In the first question, I could not understand how Sales per unit is calculated? There is $28/70%=$40 as Selling price calculated. Could you please explain how is this done?

In the end of last question we divide calculated total contribution by previous budgeted contribution per unit and there were previous absorption of fixed in this budgeted contribution per unit. I have question, why don,t we change absorption of fixed cost for unit of prod x? Shoudn’t we absorbe all fixed (without 6000 specyfic for y ) as we product and sell only x?

This question related to CVP analysis and therefore we need to know the contribution per unit for X, and the total contribution that is required (which is the profit required of 144,000 plus the total fixed costs). The total fixed costs will be as per the budget but less the specific fixed costs that relate to Y. We do not need to re-absorb and calculate a new profit per unit for X.

Have you watched the free lectures on CVP analysis?

Hi, I don’t understand in Q3 &Q5 why fixed cost is total contribution? In Q3, it mentioned fixed cost is $80000, the answer write that contribution also $8000. Same as Q5

in question 5, i do not understand how you calculated total contribution= $375000 $375000 is the fixed cost in question. please help me to understand this

Because, by definition, the total fixed costs will not change whatever they end of producing (except for the overheads that are specific to Y – they will not be incurred if Y is not produced).

Statement 1 is not true, because a profit volume chart shows the profit against the sales (not the contribution against breakeven).

Statement 2 is true because a breakeven chart shows the costs and the revenues as straight lines and this is only the case if we assume there is a constant mix.

HI JOHN QUESTION 4 PLEASE contribution per uint from x= (7.68 + 2.88 ) = 10.56 a) i want to ask why and where 2.88 was added b) how and where we got this figure 196,800

Contribution is, by definition, the profit before fixed overheads (which is the same as selling price less variable costs). $2.88 is the fixed overhead per unit.

$196,800 is the total contribution required to give a profit (after $52,800 fixed overheads ) of $144,000.

I do suggest that you watch he free lectures where all of this is explained.

Hi , please is there anything like negative contribution per unit??. Please what is total contribution when selling price per unit is 4 and variable cost per unit is 4.2. Units produced is 50,000 units. Lastly will a negative total contribution be deducted from the other positive total contribution wen finding a weighted average contribution?? Thanks

C/S ratio= 33.33%; Fixed costs = 30,000; target total contribution = $20,000. Sales revenue to earn target contribution = 1/33.33 x $20,000 = $60,006. (I got this correct)

Now.. the problem in the question increased both the fixed costs to $100,000 and target total contribution to $200,000. I have no idea on how to find the sales revenue required to achieve the new target contribution.

Here is the model solution: 1/38.6 x $200,000 = $518,135.

Why and how did the C/S ratio increase? I don’t see how the increase of fixed costs could lead to an increase of C/S ratio as well. Please help me out!

Hi sir,would like to ask Q4 of this test. The question states that fixed o/head includes apportioned general head cost.Is’nt apportioned o/head a non-cash,therefore irrelevant in decision making?Thanks

The general fixed overheads will still be incurred and will still need to be covered by the contribution. Only the overheads specific to Y will be saved.

This is a question on break even analysis (not on relevant costing)

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onel says

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

John Moffat says

Yes – your approach is fine 馃檪

onel says

Thanks soo much.

kweediie says

hi john

in question 5.

we see that the solutions says (25 X 100,000) gives 2,500,000 how possible is that sir

John Moffat says

But 100,000 x $25 does equal $2,500,000 !!

kweediie says

apologies my error

josse says

HI

i think question 5 is not totally right

true the contribution need to equal to the fixed cost to break even but

if i calculate the contribution using the cs ratio i end up with a contribution of $18.75 per unit

the correct answer would be S.P=25,Contribution =21.25 and therefore a contribution of 3.75 per unit cs ration of 85%.

Please correct me if i’m wrong.

josse says

never mind you’re right my mistake.

John Moffat says

I am pleased that you have sorted it out 馃檪

mohamed93 says

So the margin of safety is budgeted sales-breakeven/budgeted sales why in question 2 its minus revenu not the breakeven which is 80000

John Moffat says

$80,000 is not the breakeven revenue, it is the breakeven contribution.

mohamed93 says

I understand that 80000 is not the breakeven revenu but its the breakeven volume and in the example you gave in the lecture you use the breakeven volume not the breakeven revenu to get the margin of safety

John Moffat says

But think about it – using volume and breakeven volume, and using revenue and breakeven revenue will result in exactly the same answer!! Try it and see 馃檪

(Revenue = volume x selling price per unit)

jareerabedin says

Sir, other than the throughput accounting chapter, we assume that labour is a variable cost correct?

thank you

John Moffat says

No.

Direct labour (i.e. labour actually producing goods) is a variable cost. However things like supervisors wages will be a fixed cost because they will not depend on the number of units produced.

lilabasnet01 says

Hello Sir,

In the first question, I could not understand how Sales per unit is calculated? There is $28/70%=$40 as Selling price calculated.

Could you please explain how is this done?

Thank you

Regards,

Lila

John Moffat says

If the contribution is 30% of sales, then the variable cost must be 70% of sales.

The variable costs = 28 = 70% x sales.

Therefore sales = 28/70%

lilabasnet01 says

Thank you so much sir!

John Moffat says

You are welcome 馃檪

dalvi97 says

How is the variable cost 70% of sales?

John Moffat says

Contribution is sales less variable costs. So if contribution is 30% then variable costs must be 70%.

ani111 says

Hi Sir 馃檪

In the end of last question we divide calculated total contribution by previous budgeted contribution per unit and there were previous absorption of fixed in this budgeted contribution per unit. I have question, why don,t we change absorption of fixed cost for unit of prod x? Shoudn’t we absorbe all fixed (without 6000 specyfic for y ) as we product and sell only x?

ani111 says

sorry in 4th question 馃檪

John Moffat says

This question related to CVP analysis and therefore we need to know the contribution per unit for X, and the total contribution that is required (which is the profit required of 144,000 plus the total fixed costs). The total fixed costs will be as per the budget but less the specific fixed costs that relate to Y.

We do not need to re-absorb and calculate a new profit per unit for X.

Have you watched the free lectures on CVP analysis?

ani111 says

You are totaly right contribution will be the same because contribution per unit is constant. Sorry ?

John Moffat says

No problem 馃檪

annayao says

Hi, I don’t understand in Q3 &Q5 why fixed cost is total contribution? In Q3, it mentioned fixed cost is $80000, the answer write that contribution also $8000. Same as Q5

John Moffat says

I don’t think you have watched the free lectures on CVP analysis (and there is no point in attempting the tests without watching the lectures first).

Breakeven is when the profit is zero, and for zero profit the total contribution must be equal to the fixed costs.

hadiraza982 says

in question 5, i do not understand how you calculated total contribution= $375000

$375000 is the fixed cost in question. please help me to understand this

thanks

John Moffat says

For breakeven, the contribution must equal the fixed costs (and therefore the profit will be zero).

I do suggest that you watch the free lectures on breakeven analysis where this is explained.

mati0777 says

hallo,

i would like to ask why fixed cost for product X was calculated by adding fixed cost of Y to fixed cost of X, when we focus on product X only.

Thank You,

Mateusz

John Moffat says

Because, by definition, the total fixed costs will not change whatever they end of producing (except for the overheads that are specific to Y – they will not be incurred if Y is not produced).

jonathanforstudying says

For question 1 why is selling price 28/70% ?

John Moffat says

The contribution is 30% of the selling price.

Therefore the variable costs must be 70% of the selling price.

If variable cost = 70% x SP, then the SP = variable cost / 70%.

ichbinyahia says

Mr John Moffat just one word of appreciation *Thank You*

thaohuyen67 says

Pls explain the question 3, Why does the statement 1 not true and the statement 2 true? I don’t understand.

Thank you very much,

Thao Huyen.

John Moffat says

Statement 1 is not true, because a profit volume chart shows the profit against the sales (not the contribution against breakeven).

Statement 2 is true because a breakeven chart shows the costs and the revenues as straight lines and this is only the case if we assume there is a constant mix.

thaohuyen67 says

Thanks you very much 馃檪

John Moffat says

You are welcome 馃檪

prav123 says

HI JOHN

QUESTION 4 PLEASE

contribution per uint from x= (7.68 + 2.88 ) = 10.56

a) i want to ask why and where 2.88 was added

b) how and where we got this figure 196,800

thanks a lot.

John Moffat says

Contribution is, by definition, the profit before fixed overheads (which is the same as selling price less variable costs). $2.88 is the fixed overhead per unit.

$196,800 is the total contribution required to give a profit (after $52,800 fixed overheads ) of $144,000.

I do suggest that you watch he free lectures where all of this is explained.

kidrayz92 says

Hi John

I have just use the formula to obtain CM per unit as (Selling price/unit less Variable cost per unit and get the same answer am i correct??)

i.e((24-(8.4+3.6+1.44)=10.56

John Moffat says

That’s fine (although it is quicker to add the fixed costs to the profit, and in some questions you might not have the choice).

Nobody will look at your workings for the MCQ’s – a computer marks the answer – and so how you arrive at the solution does not matter.

Hemans says

Hi , please is there anything like negative contribution per unit??. Please what is total contribution when selling price per unit is 4 and variable cost per unit is 4.2. Units produced is 50,000 units. Lastly will a negative total contribution be deducted from the other positive total contribution wen finding a weighted average contribution??

Thanks

John Moffat says

Certainly if the variable costs were more than the selling price, then the contribution would be negative.

However if that were the case then you would not produce that product! 馃檪

Hemans says

Thanks John

John Moffat says

You are welcome 馃檪

complicated says

C/S ratio= 33.33%; Fixed costs = 30,000; target total contribution = $20,000.

Sales revenue to earn target contribution = 1/33.33 x $20,000 = $60,006. (I got this correct)

Now.. the problem in the question increased both the fixed costs to $100,000 and target total contribution to $200,000.

I have no idea on how to find the sales revenue required to achieve the new target contribution.

Here is the model solution: 1/38.6 x $200,000 = $518,135.

Why and how did the C/S ratio increase? I don’t see how the increase of fixed costs could lead to an increase of C/S ratio as well.

Please help me out!

John Moffat says

I am sorry but I have no idea which question you are talking about – it is not one of these practice questions.

Please ask in the Ask the Tutor Forum and give the full question.

complicated says

Oh I’m sorry! I’ll do just that.

Teo says

Hi sir,would like to ask Q4 of this test.

The question states that fixed o/head includes apportioned general head cost.Is’nt apportioned o/head a non-cash,therefore irrelevant in decision making?Thanks

John Moffat says

The general fixed overheads will still be incurred and will still need to be covered by the contribution. Only the overheads specific to Y will be saved.

This is a question on break even analysis (not on relevant costing)

luciennecal says

Hi Sir,

Is it possible to write the workings for question 4 of 5 of the practice test of cost volume profit analysis?

John Moffat says

Try the test again – the workings will appear when you submit an answer (in a pop-up window).

jasmine says

Hi, how i solve the question in unit?

c/s ratio 30% , variable cost $28 , fixed cost $21,600 , target profit $60,000

John Moffat says

If the contribution is 30% of the sales, then the variable cost is 70% of sales.

So for every $70 of variable cost, the contribution is $30.

Therefore if there is a variable cost of $28 per unit, the contribution must be 30/70 x $28 = $12 per unit.

The total contribution required = 21,600 + 60,000 = $81,600

Therefore they have to sell 81600/12 = 6,800 units.

abi01 says

Hello

Sir is it possible for you to provide me with the solutions for the questions?

John Moffat says

The software tells you whether your answer is correct or not.

If you mean the workings for the correct answer, then we are working on this. In the meantime you can ask here and I will give you the workings.

denesh says

Hi Sir,

How do you work out question 1 in this test?

infernautica says

The link leads to the Chapter 1 MCQs…please, fix it

opentuition_team says

ok, reload the page, it should be OK now,