[akash]

thanks you john i get it now 🙂

[akash]

hello john,

i was going through the course notes test chapter 8 and i am stuck in question 2. i dont understand how you are getting 60% in the answer to get the selling price.

this is the question:
A company manufactures and sells a single product for which the variable cost is $12 and the CS ratio
(contribution to sales) is 40%.
The fixed costs are $80,000 per year.
They are budgeting on selling 12,000 units per year.

this is the answer in the course notes:

For breakeven, total contribution = $80,000
Total revenue required = 80,000 / 0.4 = $200,000
Selling price = 12 / 60% = $20 per unit
Budgeted revenue = 12,000 x $20 = $240,000
Margin of safety = ((240,000 – 200,000) /240,000) x 100% = 16.67%
(Alternatively, the same answer can be arrived at by working in units instead of sales revenue)

[akash]

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[akash]

62

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