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Hi John
Could you please work this out: Revenue for Product A = $10m C/S ratio: 15%,
Product B: $20m C/S ratio: 10%Total fixed cost: $5.5m and company wants to earn a profit of $1m
What is the revenue that needs to be generated by Product C, in million, to achieve the required profit?
(I assume that the book where you found this question also has the answer in it! It is therefore better if you say what your problem is then simply ask me to provide an answer!)
For a profit of $1M they need a contribution of $6.5M.
The contribution from A is 15% x 10 = 1.5M. The contribution from B is 10% x 20 = $2M.
So the contribution needed from C is $3M.
Now you can work backwards to calculate the revenue needed from C.Hi Sir
Thank you, I now understand the answer which is $12m because the C/S ratio for C is 25% and therefore $3m is the contribution.
Hi Sir
I was just wondering how you worked out the total contribution. For example now I know the total Revenues for all products; Product A $10m, Product B $20m and Product C $12m, in total $42m but when I calculated it to the total ratios which is 50%, it gives $21m instead of $6.5m?
You can’t add the percentages together!!!
(20% of 100 plus 30% of 200 does not equal 50% of 300!!!! Try it and see!)
Profit is contribution minus fixed costs. Since we know the total profit wanted and we know the total fixed costs, we know the total contribution wanted.)
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