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Hi sir John,
Sir I can’t Understand the Question on page 88 of BPP Textbook chapter CVP Analysis regarding how to find Contribution and Minimum sales Value? Can you please Explain me?, If you don’t have the text book then Reply me I will provide you the whole question.
I do not have the BPP text books, so you will have to provide the question.
Ok Sir Here is the Question:
Sutton Produces 4 products. Relevant Data is shown Below for period 2:-
Product M Product A Product R Product P
C/S Ratio 5% 10% 15% 20%Maximum sales Value $200,000 $120,000 $200,000 $180,000
Minumum Sales value $50,000 $50,000 $20,000 $10,000
The Fixed Costs for period 2 are budgted at $60,000
Required:-
Fill in the Blank in the Sentence Below.
The Lowest Breakeven Sales value, Subject to meeting the minimum sales value constraints are ……..
The Answer is $390,000 but I can’t really understand how? Please do explain this
Thanks
OK 🙂
For breakeven, the total contribution has to be equal to the fixed costs of $60,000.
First, we have to have the minimum sales. This is total sales of 50000 + 50000+ 20000 + 10000 = 130,000
And it gives total contribution of (5% x 50000) + (10% x 50000) + (15% x 20000) + (20% x 10000) = 12500That means we need an extra 48500 (60000 – 12500) contribution to break even.
We go to the product with the highest CS ratio, which is P. The maximum sales are 180000, but we already have 10000 (above) and so we will sell an extra 170000 and get extra contribution of 20% x 170000 = 34000.
This means that we now need an extra 13500 (48500 – 34000) to break even.
So we go to the next highest CS ratio, which is R. However to sell maximum R would give too much contribution and so the extra sales of R to give a contribution of 13500 at 15%, is 13500 / 15% = 90000.
So….the total sales for breakeven are 130000 (minimum sales, above) + 170000 (extra sales of P) + 90000 (extra sales of R) which gives a total of 390000.
Hope that helps 🙂
Wow thank you So much ,I was scratching my Head while looking at BPP answer but now I finally Understood thanks alot 😀
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