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Hi sir,
I have certain issues concerning example 6 in your notes and lectures(CVP ANALYSIS)
I do have watched your lectures and at the end after drawing and plotting the information, you’ve said the following:
“The break even point($26402) if they are sold in the same ratio but if we sell P first we will break even sooner”-What do you mean by; especially ‘sold in the same ratio’?(You do have explained it but I am still having some difficulties to understand it)
Thanks.
Suppose we budget on selling 150 units – 100 of product A and 50 of product B. So 2/3 of the sales are A and 1/3 are B.
Suppose we actually only sell 75 units in total. Then if we assume that we sell in the same ratio as budgeted would mean selling 2/3×75 = 50 units of A, and 1/3×75 = 25 units of B.
Obviously in practice, we might well sell fewer units in total but it is unlikely that the ratio between the two products will stay the same.
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