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Hi there,
I came across this question in BPP revision kit. But I didn’t find the answer justifying. Can someone pls explain it to me?
Question
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 1.968mWhat I don’t get is that 360,000 is NOT contribution and is FIXED COST as stated in question. Is this a printing error or am I wrong?
Pls help me. I’ve my exam this Wednesday.
Thanks a lot!Breakeven is when the profit equals zero.
For zero profit the total contribution must be equal to the fixed costs, so in this example breakeven is when the contribution is equal to 360,000.
Have you watched my free lectures on CVP analysis? (The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well!)
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