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Hi John
How would I work this out,
‘The budgeted profit statement of a company, with all figures expressed as a percentage of revenue is as follows:
Revenue: 100
Variable cost 40
Fixed cost 20
Profit 40If the sales volume turns out to be only 80% of that budgeted, the profit, expressed as a percentage of the revised revenue will be in %.’
It the revenue is 80, the variable cost will be 32 (80% x 40), and the fixed costs will stay at 20.
Then you can work out the profit, and calculate it is a percentage of the new revenue of 80.
Hi Sir
I was just wondering, the answer for this question as a profit is 35%. if I was work to calculate the profit to 80% the answer is 32 but the given answer is 35%?
How can the profit be 32????
Profit is revenue minus variable costs minus fixed costs. I gave you the figures and it does not come to 32!!!
Hi Sir
If I’m confuse because the given answer is 35% and I divide to 80% = 0.4375 which is wrong. But Revenue is 80 – 32 as variable – 20 as fixed cost then this equal to 28/35 = .80, is that correct?
If you do what I said, the profit will be $28.
With revenue of $80, the means that the profit as a percentage of revenue is 28/80 = 35%
Hi Sir
Could you please help with this question
A company sells three products, Product E has a contribution to to sales ratio of 25%,
Product F has a contribution to sales ratio of 20%, Product G has a contribution of sales ratio of 30%.Monthly fixed costs are $400000
If the ratio of the total sales value is a as follows:
E: 30%, F: 50%, G: 20%
What is the monthly breakeven sales revenue?
The given answer to this is 1702128.
You need to calculate the average CS ratio. There are several ways you could do this, but I think the easiest is to imagine total sales are $100 (100 is an easy number to work with, but any number would do).
So…..the sales of each product would be E:30; F:50; G20No calculate the total contribution: (30 x 25%) + (50 x 20%) + (20 x 30%) = 23.5
So the average CS ratio is 23.5/100 = 23.5%
Now you should find it easy to calculate the breakeven revenue.
thank you sir,now I know how to tackle this type of question.What I have done is I divided the sales value to 100 then multiply it by contribution to sales ratios then fixed cost divide monthly breakeven sales revenue 400000/0.235=1702128.
Hi Sir
I have this question which I have been trying to find a rule of calculating it, I don’t know whether I should rank it on as it is asking for the maximum amount that the company should pay if additional 1000 kg is added.
Product A has raw material per unit of 2.5 kg, contribution of $4.50, planned production in units: 720 and maximum sales demand of 1000
$4.80
Product B: raw mat. per unit: 3kg, contribution per unit: $4.80, no planned production in units, sales demand 2400.Product C: raw mat. of 1.5 kg, contribution per of unit of $2.95, planned production in unit: 2800 and maximum sales demand of 2800.
The correct answer is $2240.00
This is not CVP analysis – it is key factor analysis.
You should rank on the basis of contribution per kg. (So for A, the contribution per kg is 4.50/2.5 = $1.80.
The most to pay is the most extra contribution that will be earned from an extra 1000 kg. You will use it making more of the product with the greatest contribution per kg (but without exceeding the maximum demand).
The question I would like to ask is what are the limiting factor for this question. Isn’t it we need to first check whether the supply of each product is adequate before working out the contribution per kg. I’m confuse of where I should be looking for limited factor.
Anyway I worked out the total material required for each product to find whether each product is adequate but they seemed to have exceeded the sales demand and that’s where I’m stuck with.
The limiting factor is the material.
At present, they are only producing 720 units of A when they could sell 1000 units. The reason can only be because at the moment the supply of materials is limited (same for B and C). So…if they get more material they can produce more units (but in the case of A, for example, they would only be prepared to produce up to an extra 280 units because then they would be making 1000 units and that is the maximum they can sell.
So if they do get an extra 1000 kg, you have to decide whether it would be best to use it making more A’s or more B’s (they cannot make more C’s because they will not be able to sell more than they currently produce).
It’s actually Product B that they need to produce more as there is no planned productions (units), it’s sales demand is 2400, make the used of extra 1000 kg, the difference 1400 x 1.60 = 2240, is that correct?
Hi John,
I was checking if I was able to solve the queries that jefcen2610 had, however I am stuck.
Regarding the last question he asked you, how come the answer is 2240? Why did he only produce from product B, if A had more contribution per kg and thus can produce 280 units more?
Moreover, why the working was 2400-1000kg which is 1400units of product B. Doesnt each unit used 3 kg each? Thus 1400 units x 3kgs would be 4200 kg in total? You only were given 1000kg extra, so how can you make 1400units if they use 4200kg to produce?
Kindly explain as I got mixed up.
Thank you in advance.
You are right – they should produce 280 more units of A first.
2400 – 1000kg does not equal 1400 units – it equals 1400 kg 🙂
Hi John,
Thank you for your reply. However, the 2400 is 2400 units of B?
Since my answer is 280 units of a and 100 units of B.
280 units of A x 2.5 kg per unit x 1.8 contribution per kg = $1,260
100 units of B x 3 kg per unit x 1.6 contribution per kg = $480
Thus, the total would be $1,740 ..I still can’t get it :/
Sorry – you are correct and I did make a mistake in my answer before.
The correct answer is what you have typed. Either jefzen mistyped the question or (more likely) there is a mistake in the answer in his book.
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