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- This topic has 3 replies, 3 voices, and was last updated 1 year ago by John Moffat.

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- July 24, 2021 at 4:53 am #629261
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 : 2,802,000Breakeven 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 = 2.7083Please tell me where did I get wrong!

this question is from the BPP kit.July 24, 2021 at 7:26 am #629277Up 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 #630484Dear 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 #630500Yes, 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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