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Hlo sir
in the examiner report of PM March/june 2023
I have confusion in section B questions which is named as Razquetz Co.
In the question number 2 of Razquetz co
I got the breakeven revenue in total but
confused at the time of alllocating them in two parts .
I allocate them using the ratio 3:5 but
they allocate them using different total sales revenue ratio
Why sir
In conclusion I understand that in we need to break the breakeven units then we used the constant mix ratio but if we need to break the breakeven revenue then we need to break by using the total sales revenue yeah sir ?In multi-product CVP analysis, when calculating breakeven revenue, it is essential to use the total sales revenue ratio rather than a fixed mix ratio. Why?
Because breakeven revenue is determined by the contribution to sales (C/S) ratio, which reflects the overall sales mix and the relative sales prices of the products.
If you think about it actual sales proportions of each product can vary.So this allows for a more accurate representation of how much revenue each product contributes to covering fixed costs. Your method does not reflect the actual revenue contributions when products have different selling prices.
So total sale revenue, you need FC/ weighted av CS ratio which is given
Then take that total and proportion of it or split it based on total revenue of each product based on proportions
If it’s 3:5
What are the selling prices ……..22:32
Then that gives 66:160 for each product as a proportion of 226 in total
Total rev * product proportion/total proportionBut sir when calculating weighted average CS ratio.. We used fixed mixed yeah
and when seperating both of them, We used total sales revenue mix?
I mean at the time of calculating the weighted average CS ratio we use the ratio of 3:5 and for seperating them between two componenents we used 66:160 ratio
isnt it sir
I am so much confusedTotal revenue
You look at selling price & volume
So it’s sp * vol
That’s the 66:160
This is because breakeven revenue reflects the overall contribution of each product to total sales, which can differ from the unit sales mix.I would advise you to focus on something else
Have another look tomorrow or the day after
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