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Breakeven sales revenue

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Breakeven sales revenue

  • This topic has 3 replies, 3 voices, and was last updated 10 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • July 24, 2021 at 4:53 am #629261
    wroheet
    • Topics: 8
    • Replies: 1
    • ☆

    A company has fixed costs of $1.3 million. Variable costs are 55% of sales up to a sales level
    of $1.5 million, but at higher volumes of production and sales, the variable cost for
    incremental production units falls to 52% of sales.
    What is the breakeven point in sales revenue, to the nearest $1,000?
    Ans : 2,802,000

    Breakeven sales revenue = Fixed cost / CS ratio

    CS ratio = Contribution / sales

    I don’t know how to find the CS ratio right here

    total contribution = Sp – Vc = 1.5 m – ( 55%1.5) ???
    or
    total contribution = 1.5 -( 52% 1.5 ) = 0.72 ??

    CS ratio = 0.72/1.5 =0.48
    BE ( sales revenue ) = 1.3/0.48 = 2.7083

    Please tell me where did I get wrong!
    this question is from the BPP kit.

    July 24, 2021 at 7:26 am #629277
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49583
    • ☆☆☆☆☆

    Up to sales of $1.5M, the variable costs are 55% of sales. Therefore the contribution is 45% of sales (so the CS ratio is 55%).

    For sales of $1.5M the contribution must therefore be 45% x $1.5M = $675,000.

    However for breakeven, the contribution must be equal to the fixed costs of $1.3M. So to reach breakeven they need extra contribution of 1,300,000 – 675,000 = $625,000.

    For sales above $1.5M the CS ratio is 48% and therefore for extra contribution of $625,000 the need extra sales (in addition to the $1.5M) of 625,000/0.48.

    August 5, 2021 at 1:02 pm #630484
    phungnguyen266
    • Topics: 2
    • Replies: 2
    • ☆

    Dear tutor,

    I also have question for this too.
    Can I assume that “variable cost / sale ratio + C\S ratio = 1”?

    Thank you.

    August 5, 2021 at 4:17 pm #630500
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49583
    • ☆☆☆☆☆

    Yes, but it is not an assumption, it is a fact (because the variable cost plus the contribution is always equal to the sales).

    It is equal to 1 if the ratios are expressed as decimals. It is equal to 100% if the ratios are expressed as %’s.

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