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Pg39 Qeustion 123
Product X :
C/S Ratio : 0.3
Selling Price p.u : 3
Max Demand : 8000 unitsProduct Y :
C/S Ratio : 0.5
Selling Price p.u : 4.8
Max Demand : 3000 unitsFixed Cost : 9000
What is the minimum revenue required for production to break even?
Answer & guideline provided : 20400
**** but I still cant understand, can Sir help me to solve this doubt ?For breakeven we need the total contribution to be $9,000.
To reach breakeven as fast as possible we will make the product with the highest CS ratio first, which is Product Y. The most we can sell of Y is 3,000 and this will give us revenue of $14,400 and a contribution of $7,200.
Therefore we need extra contribution of 9,000 – 7,200 = $1,800 and we therefore need revenue from X of 1,800 / 0.3 = $6,000.
Therefore the total revenue is 14,400 + 6,000 = $20,400.
Have you watched my free lectures on CVP analysis? The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
Thanks to Mr Moffat. This explanation is more understandable than answer provided.
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