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Hi,
Was watching the lecture video and realized using the formula Breakeven($)=Fixed costs/ C/S ratio gave a different result than the one used in the video where breakeven units was multiplied by contribution to get breakeven revenue. Which is correct please?
Thanks.
Both approaches give exactly the same result!!
For example, suppose the selling price is $60 per unit, the variable costs are $20 per unit (so a contribution of $40 per unit), and the fixed costs are $20,000.
One approach:
Breakeven units = 20,000 / 40 = 500 units.
Therefore breakeven revenue = 500 x $60 = $30,000Second approach:
C/S ratio = 40/60
Therefore breakeven revenue = 20,000 / (40/60)= $30,000The best approach in the exam depends on what information is given, but both approaches will give the same answer.
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