Hi John,
For question 2, what was logic behind calculating Selling price as = 12/60%=20?
J
John MoffatTutor·
Since the contribution is 40% of sales, and the contribution is the sales less the variable costs, it means that the variable costs must be 60% of the sales
P
Payal·
Thank you.
J
John MoffatTutor·
You are welcome :-)
M
Milton·
Sir, why do we add only the fixed costs of $2.88 tot the profit of X to get the contribution for X, and not also the $2.4 ((12500*$2.4)-($6000))/10.000, if only X were to be made?
J
John MoffatTutor·
Contribution is the revenue less the variable costs, which is the same as the profit plus the fixed costs.
L
Lehlohonolo·
Yes
S
Shanmugapriya·
Sir,
In Ques 1
Target Profit = $60,000
Fixed cost = $21600
So contribution be = 38400
But taking contribution amt = 81600
Kindly Explain
J
John MoffatTutor·
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.
W
Wes·
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.
W
Wes·
Sorry, I forgot about the other variables.
A
Aayush·
Hi sir, u have helped me a lot in my acca journey, i just wanted to thank u
T
Thu·
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.
J
John MoffatTutor·
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.
S
Sandra·
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?
B
Behram·
Question
To achieve a target profit, we will use contribution in formula or C/S ratio.
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?
K
KEVIN·
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 ! ????
H
Hermela·
sorry sir, can you tell me what product sale mix is?
J
John MoffatTutor·
The way the total sales are mixed between the different products.
H
Hermela·
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,
J
John MoffatTutor·
That was a breakeven chart - not a profit volume chart,
B
BUSHRA·
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?
J
John MoffatTutor·
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.
A
arish·
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)?
J
John MoffatTutor·
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 :-)
Y
Yemi·
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?
Y
Yemi·
I'm referring to question 5
J
John MoffatTutor·
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.
A
adu·
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.
J
John MoffatTutor·
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.
R
Ram·
In question 2 , Is there a missing of per unit in variable cost ?
Otherwise it may then refer to total variable cost.
J
John MoffatTutor·
It is per unit (it could not possibly be the total cost :-) )
N
nelson·
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 = (2.88x10,000) +(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
J
John MoffatTutor·
Yes - your approach is fine :-)
N
nelson·
Thanks soo much.
K
kolawole·
hi john
in question 5.
we see that the solutions says (25 X 100,000) gives 2,500,000 how possible is that sir
J
John MoffatTutor·
But 100,000 x $25 does equal $2,500,000 !!
K
kolawole·
apologies my error
J
josse·
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.
J
josse·
never mind you're right my mistake.
J
John MoffatTutor·
I am pleased that you have sorted it out :-)
M
Mohamed·
So the margin of safety is budgeted sales-breakeven/budgeted sales why in question 2 its minus revenu not the breakeven which is 80000
J
John MoffatTutor·
$80,000 is not the breakeven revenue, it is the breakeven contribution.
M
Mohamed·
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
J
John MoffatTutor·
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 :-)
(Revenue = volume x selling price per unit)
A
Avery·
Sir, other than the throughput accounting chapter, we assume that labour is a variable cost correct?
thank you
J
John MoffatTutor·
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.
L
Lila·
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
J
John MoffatTutor·
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%
L
Lila·
Thank you so much sir!
J
John MoffatTutor·
You are welcome :-)
S
Suaad·
How is the variable cost 70% of sales?
J
John MoffatTutor·
Contribution is sales less variable costs. So if contribution is 30% then variable costs must be 70%.
A
ani111·
Hi Sir :)
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?
A
ani111·
sorry in 4th question :)
J
John MoffatTutor·
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?
A
ani111·
You are totaly right contribution will be the same because contribution per unit is constant. Sorry ?
J
John MoffatTutor·
No problem :-)
M
misbah789·
Hello sir,
In the 2nd question, there is total revenue which is 80,000/0.4 but why we're dividing 0.4 in this?
J
John MoffatTutor·
The fixed costs are 80,000 and therefore the breakeven contribution is 80,000.
Since the CS ratio is 0.4, the breakeven revenue must be 80,000/0.4. (0.4 is the same as 40%!)
Did you watch my free lectures before attempting the test? The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
A
annayao·
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
J
John MoffatTutor·
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.
H
Hadi·
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
J
John MoffatTutor·
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.
M
MateuszSupporter·
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
J
John MoffatTutor·
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).
J
Jonathanforstudying·
For question 1 why is selling price 28/70% ?
J
John MoffatTutor·
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%.
Y
Yahya·
Mr John Moffat just one word of appreciation *Thank You*
H
HUYEN·
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.
J
John MoffatTutor·
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.
H
HUYEN·
Thanks you very much :)
J
John MoffatTutor·
You are welcome :-)
P
prav123·
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.
J
John MoffatTutor·
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.
K
kidrayz92·
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
J
John MoffatTutor·
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.
H
Hemans·
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
J
John MoffatTutor·
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! :-)
H
Hemans·
Thanks John
J
John MoffatTutor·
You are welcome :-)
D
Derrick·
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!
J
John MoffatTutor·
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.
D
Derrick·
Oh I'm sorry! I'll do just that.
T
Teo·
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
J
John MoffatTutor·
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)
L
lucienne·
Hi Sir,
Is it possible to write the workings for question 4 of 5 of the practice test of cost volume profit analysis?
J
John MoffatTutor·
Try the test again - the workings will appear when you submit an answer (in a pop-up window).
J
jasmine·
Hi, how i solve the question in unit?
c/s ratio 30% , variable cost $28 , fixed cost $21,600 , target profit $60,000
J
John MoffatTutor·
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.
A
abi01·
Hello
Sir is it possible for you to provide me with the solutions for the questions?
J
John MoffatTutor·
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.
D
denesh·
Hi Sir,
How do you work out question 1 in this test?
I
infernautica·
The link leads to the Chapter 1 MCQs...please, fix it
For question 2, what was logic behind calculating Selling price as = 12/60%=20?
In Ques 1
Target Profit = $60,000
Fixed cost = $21600
So contribution be = 38400
But taking contribution amt = 81600
Kindly Explain
Given that the profit is 60,000 and that is after charging fixed costs of 21,600, the contribution must be 81,600.
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.
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?
And why did we add the 2.88 to the contribution?
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.
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)?
All of the first statement does not really make any sense, which is why it is untrue :-)
Why did you use BREAKEVEN sales revenue(fixed cost/CSratio) instead of BREAKEVEN POINT?
Otherwise it may then refer to total variable cost.
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 = (2.88x10,000) +(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
in question 5.
we see that the solutions says (25 X 100,000) gives 2,500,000 how possible is that sir
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.
(Revenue = volume x selling price per unit)
thank you
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?
Thank you
Regards,
Lila
The variable costs = 28 = 70% x sales.
Therefore sales = 28/70%
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?
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?
In the 2nd question, there is total revenue which is 80,000/0.4 but why we're dividing 0.4 in this?
Since the CS ratio is 0.4, the breakeven revenue must be 80,000/0.4. (0.4 is the same as 40%!)
Did you watch my free lectures before attempting the test? The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
Breakeven is when the profit is zero, and for zero profit the total contribution must be equal to the fixed costs.
$375000 is the fixed cost in question. please help me to understand this
thanks
I do suggest that you watch the free lectures on breakeven analysis where this is explained.
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
Therefore the variable costs must be 70% of the selling price.
If variable cost = 70% x SP, then the SP = variable cost / 70%.
Thank you very much,
Thao Huyen.
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.
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.
$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.
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
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.
Thanks
However if that were the case then you would not produce that product! :-)
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!
Please ask in the Ask the Tutor Forum and give the full question.
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
This is a question on break even analysis (not on relevant costing)
Is it possible to write the workings for question 4 of 5 of the practice test of cost volume profit analysis?
c/s ratio 30% , variable cost $28 , fixed cost $21,600 , target profit $60,000
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.
Sir is it possible for you to provide me with the solutions for the questions?
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.
How do you work out question 1 in this test?