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Hello sir
BPP qn 93, Pg no 25. Please advise why $625000/.48?? Just understood that $675000 contribution covers FC of $675000 and the remaining $625000 of 1300000 to be covered(625000/1300000) which is 48%. But didn’t understand the concept of dividing 625000/.48 to calculate the BE sales to cover FC of 625000.
There is no question 93 on page 25 of the current edition of the BPP Revision Kit.
However I think I know which question you are referring to.
We always divide the fixed overheads by the CS ratio in order to calculate the breakeven revenue and I do explain this in my free lectures on CVP analysis.
BPP 2019-20. I went through the lecture sir.. and understood that BE in revenue is FC/ C/S ratio..but I don’t clearly understand how this 48%.FC is 625000. C/S = did not understand 48%. I thought it would be 625000 (Fc yet to cover) /1300000 (Total FC)
Since the variable costs are 52% of sales, the contribution must be 48% of sales, so the CS ratio is 48%.
They need to cover an extra 625,000 fixed costs and so they need an extra 625,000/48% revenue.
Thanks a lot sir. Really understood and sorry for asking questions frequently.
Qn 111 BPP 2019-20, MCQ : Budgeted sales are $2.4 million, budgeted fixed costs are
$360,000 and the margin of safety is $400,000. budgeted variable costs?I understood that BE = 2.4-.4 = 2m
BE = FC/ C/s ratio
FC = .36M. But in BPP, FC is considered a contribution and taken .36 m as contribution.
Therefore, c/s ratio = .36/2 =18% and hence VC 82%.But dint understand why FC is considered contribution.
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