Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › CVP analysis
- This topic has 5 replies, 2 voices, and was last updated 6 years ago by John Moffat.
- AuthorPosts
- January 24, 2018 at 3:56 pm #432673
Hi my Dear tutor,? have a question.
Product—————————–A——B———-C
Sales—————————-1794–3740—2950
production cost of sales—1242—-2860—1888
gross profit——————–552——880—-1062non production overheads–460—-770—-767
net profit————————–92——110—-295
sales units——————-1150——–2200—2360fixed production overheads are absorbed at a rate of 0.30 per unit for each product.Non-production overheads include certain costs that vary with activity at a rate of 10% of sales value.
calculate,based on the current mix of sales, the sales required of each product in order to generate a total contribution of 3750 per annum
Solution
Total sales————————————————————8484
Variable production costs:
Total production costs(1242+2860+1888)–5990
Fixed production cost(5710 units *0.30)—(1713)
Variable non-production cost(8484*10%)—(848,4)
total contribution—————————————————-3358,6My question here is that
Sales required 8484*3750/3358,6=9473
Why i multiply 8484 by 3750 and dividing 3358,6?i have two total contribution 3750 and 3358,6 and never faced any formula like that .
could u explain?
January 25, 2018 at 7:45 am #432850But this isn’t a special formula – it is basic arithmetic.
Currently the sales are 8484 and the contribution is 3358.6. So the sales are 2.526 (8484/3358.6) times the contribution.
So for a contribution of 3750, the sales must be 2.526 x 3750 = 9473
(You would get exactly the same answer by dividing 3750 by the CS ratio, as I do in my free lectures).
January 25, 2018 at 6:19 pm #432993Really,I was stuck to understand it.I have two total contribution which one of them is 3358,6 and another is 3750.
according to your calculation,8484/3358,6 means total sales of 8484/total contribution of 3358,6 which gives the outcome of 2.526.
Please explain it in a clear way:(
January 26, 2018 at 7:17 am #433064Of course there are two contributions!
Currently the sales are 8484 and the contribution is 3358.6.
The question asks what the sales would have to be for the contribution to be 3570.
For a higher contribution, there must be higher sales. The ratio of sales to contribution must stay the same.
Have you watched the free lectures on CVP analysis?
January 26, 2018 at 10:03 am #433098I Have watched and will watch it again probably.
January 26, 2018 at 2:52 pm #433160I assume that my second answer now makes sense to you?
- AuthorPosts
- The topic ‘CVP analysis’ is closed to new replies.