BPP Text Book Example

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) = 12500 That 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 :D

You are welcome :-)