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A company produces and sells a single product. Budgeted sales are 2.4 million, budgeted fixed cost are 360,000 and the margin of safety is 400,000. What are budgeted variable cost?
A- 1.640m
B- 1.728m
C- 1.968m
D- 2.040m
The correct answer is C.
Explanation: breakeven sales= 2.4m – 400,000= 200,000
Contribution at this level of sales= 360,000.
C/s ratio= 360/2000 = 18%
So variable is 82% of sales that’s 1.968mwhy on C/S ratio the amount of 360.000 is divided by 2m (break-even sales) rather than the amount of 2.4 m (budgeted sales)?
Because it is at breakeven always that the fixed costs divided by the CS ratio give the breakeven sales.
Therefore the CS ratio equals always the fixed costs divided by the breakeven sales.Have you watched my free lectures on this?
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