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 This topic has 10 replies, 2 voices, and was last updated 5 years ago by John Moffat.

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December 22, 2016 at 11:55 am #364244adarsh1997
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Fixed overhead:
product 1 is $1.20
product 2 is $1.00budgeted production and sales is:
product 1 is 10,000 units
product 2 is 12,500 unitsThe fixed overhead costs included in P1 relate to apportionment of general overhead costs only. However P2 also includes specific fixed overhead totalling $2500
This is actually a long question but I am having some difficulties only with the fixed overhead.
In the book, the working for Fixed overhead is as follows;
(1.2 x 10,000)+(1 x 12,500)2500= $22,000*Why 2500 has been less?
According to me,The total Fixed overhead for P2 is (1 x 12,500)=$12,500. This 12,500 represent the total FO of P2 which is a combination of specific FO+Not specific FO;therefore, there is no point of deduction the the $2,500.Please help me. Thanks
December 22, 2016 at 6:25 pm #364260John MoffatKeymaster Topics: 57
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I can’t really answer without seeing the whole question.
However I would imagine that maybe they are stopping production of P2 in which case the total fixed overheads would remain the same (at 24,500) except for the fact that 2,500 of them would disappear if P2 were stopped, which would then leave them with only 22,000.
December 22, 2016 at 6:41 pm #364264adarsh1997 Topics: 629
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I have understand your point. Thank you
December 23, 2016 at 7:38 am #364283John MoffatKeymaster Topics: 57
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You are welcome 🙂
December 23, 2016 at 7:38 am #364284John MoffatKeymaster Topics: 57
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You are welcome 🙂
December 24, 2016 at 11:11 am #364373adarsh1997 Topics: 629
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M produces and sells two types of sports equipment.
A batch of balls sells for $8 and has a variable cost of $5. Rackets sell for $4 per unit and have a unit variable cost of $2.60. For every 2 batches of balls sold, one racket is sold. Budgeted fixed cost is $407,000 per period. Budgeted revenue is $1,250,000.Calculate the margin of safety.
Could you please help me to do this?
December 24, 2016 at 3:17 pm #364387John MoffatKeymaster Topics: 57
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What you need to do is first calculate the revenue from 2 balls and 1 racket ($20). If you then divide by 3 you will have the average revenue per batch, and if you divide 1,250,000 by the average revenue per batch you will know how many batches are sold in total.
Then you need to calculate the average contribution per batch in a similar way. If you divide the fixed costs by the average revenue per batch you will then have breakeven batches.
Then the margin of safety should be easy for you 🙂
December 25, 2016 at 6:15 am #364421adarsh1997 Topics: 629
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I do have followed your steps but has not obtained the answer.
In the book, the answer is $150,000 or as a percentage is 12%Please help.
December 25, 2016 at 8:03 am #364424John MoffatKeymaster Topics: 57
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If you have typed the question correctly then the answer is indeed 12% (but not 150,000 – it is 165,000).
Surely the book shows workings? If it is from one of the ACCA approved publishers then it certainly should!
January 4, 2017 at 8:51 am #364985adarsh1997 Topics: 629
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Dear sir,
I do have watched your lectures concerning CVP but still have some difficulties in understanding c/s ratio. Could you give me a brief definition of it and the figure we obtain(which is 0.6666 in your example), what does it represent?Thanks.
January 4, 2017 at 4:31 pm #365072John MoffatKeymaster Topics: 57
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I give the definition in the lecture!
It is the contribution divided by the selling price.
If the CS ratio is 0.6666 then it means that the contribution will always be 0.6666 (or 66.66%) of the sales.

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