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Dear Sir, Can you help me how to get the answer for this question and explain it?
Thanks in advanceSutton produces four products. Relevant data is shown below for period 2.
Product M Product A Product R Product P
C/S ratio 5% 10% 15% 20% (Respectively)
Maximum sales value $200,000 $120,000 $200,000 $180,000 (Respectively)
Minimum sales value $50,000 $50,000 $20,000 $10,000 (Respectively)
The fixed costs for period 2 are budgeted 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, is $……..…..
For break even, we need the total contribution to be equal to the fixed costs of 60,000.
You can calculate the contribution that will be earned from the minimum sales values. In total it comes to 12500, which means we need an extra 47500.
To achieve it you need to sell extra of the one with the highest CS ratio, which is P. The most extra we can sell of P is 170,000 (max sales) which will give extra contribution of 34000 that isn’t enough so then sell extra of the one with the next highest CS ration, and so on.
Hope that helps 🙂
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