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CVP Analysis

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › CVP Analysis

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • December 5, 2021 at 8:11 am #642557
    kish200
    Participant
    • Topics: 24
    • Replies: 53
    • ☆☆

    Good Day Sir
    I came across this question and wanted to ask:

    Dalton Co produces and sells a product for $90. The production for the
    upcoming year is budgeted to be 30,000 units and Dalton Co expects all
    the produced units to be sold.
    The cost accountant has determined the break-even point (in revenue) to
    be $600,000, whereas contribution to sales ratio is 40%.
    What is the expected profit for the year?
    A $840,000
    B $960,000
    C $720,000
    D $980,000

    I got the correct answer which is A.
    As from their solution the correct way to get the answer was as follows:
    The candidates need a thorough knowledge of break-even formulas
    to solve this question.
    Break-even revenue = Fixed costs / Contribution to sales ratio
    Re-arranging the formula;
    Fixed costs = Break-even revenue x Contribution to sales ratio
    Fixed costs = $600,000 x 40%
    Fixed costs = $240,000
    Contribution per unit = Selling price x Contribution to sales ratio
    Contribution per unit = $90 x 40%
    Contribution per unit = $36
    Total contribution = Units sold x Contribution per unit
    Total contribution = 30,000 x $36
    Total contribution = $1,080,000
    Total profit = Total contribution – Fixed costs
    Total profit = $1,080,000 – $240,000
    Total profit = $840,000

    However, for a section A question, this would take me a tremendous amount of time which I do not have.
    I got my answer as follows:
    Breakeven point (revenue) 600 000/90= 6667 units to break even.
    Therefore 30000-6667= 23333units make a profit.
    So to get the profit it is 90*40%
    36*23333 units = 839988 (round up to 840 000).

    My question is that is this a method I can use or did this answer just happen to be correct by chance?

    December 5, 2021 at 9:02 am #642573
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    Your method is fine (and nobody looks at your workings for this sort of question, so it doesn’t matter what method you use 🙂 )

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • The topic ‘CVP Analysis’ is closed to new replies.

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