a company has fixxed costs of 1.3 mln.Variable costs are 55% of sales up to a sales level of 1.5$ mln, but a higher volumes of production and sales, the variable cost for incremental production units falls to 52% of sales.
c/s-0.45
c/s-0.48
F.C----------------------(1.3)
contribution(1.5*0.45)--0.675
the remaining FC=======0.625/0.48 c/s
BER=====================1.30
add--------------------------------------1.5
total========================2.80
what is the BEP iin sales revenue to the nearest $1000
my question here is that why we add sales 1.5 over BER of 1.30?
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5y ago#1We need the level of sales that will make the contribution equal to the fixed costs of $1.3M.
We know that sales revenue of $1.5M will give a contribution of 45% x $1.5M = $675,000.
This is not enough contribution so we need an extra 1.3M - 675,000 = $625,000.
So this means we need extra sales of 625,000 / 0.48 = $1,302,083. These are the extra sales needed over and above the $1.5M so as to end up with a total contribution of $1.3M.
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