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Hi,
Please could you let me know if my answer to the below question is correct.
Bradley Ltd produces two products, Pinky and Perky. These account for 60% and 40% of the total sales dollars of Bradley Ltd respectively. As a percentage of sales dollars, variable costs are 60% for Pinky and 85% for Perky. Total fixed costs are $150000.
There are no other costs.
What is Bradley’s breakeven revenue?
A) $312500
B) $350000
C) $450000
D) $500000My answer:
Suppose $100000 = revenue
Pinky = 60% of 100000 = 60000
Perky = 40% of 100000 = 40000Contribution:
Pinky = 60000*(1-0.4) = 24000
Perky=40000*(1-0.85) = 6000C/S ratio = 30000/100000 = 0.3
Breakeven revenue = 150000/0.3 giving 500000 = D?
Following that question, I have the below which is similar yet, I just do not understand how the answer works, it is a Kaplan question from their exam kit -and has completely puzzled me.
EC Ltd produces and sells the following two products throughout the year in a constant mix:
Product X: Product Y:
Variable cost per $ sales : $0.45 $0.6Fixed costs $1,212,000 per period
The management of EC has stated that total sales revenue will reach a maximum of $4,000,000 and is generated by the two products in the following proportions :
Product X: Product Y:
Variable cost per $ of sales: 70% 30%Calculate the breakeven sales revenue required per period, based on the sales mix assumed above.
Please could you explain how you would tackle this as I really do not understand the answer they have given. The most confusing thing for me is where they have stated for example $0.45 VC and then 70% VC, I understand that to be that $0.45 is 70% worth of VC? For X Kaplan have worked out on a $100 total basis, sales = $70 and contribution = $70*0.55 = 38.5
I’d really appreciate if you could go through this in layman terms – I know that it is an easy concept but this Q has completely thrown me off.
Thank you!
Your answer to the first question is correct (although surely there is an answer in your book? 🙂 )
With regard to your second question, is the variable cost per $ sales for X is $0.45, and therefore the contribution per $ sales is $0.55.
However later in the question either you have copied it wrongly or Kaplan have a typing mistake. It says variable cost per $ sales is 70% and 30%, which cannot be what is meant.
From what you have typed of their answer, they must have meant to type that the mix of sales is 70% and 30%.
It does look as though it is a typing error by Kaplan.
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