- This topic has 4 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
Hi. I’m stuck with this question:
Sutton produces 4 products:-
M: min/max sales are(respectively) 50 000/200 000;CS ratio 5%.
A: min/max sales 50 000/120 000, CS ratio 10%.
R: min/max sales 20 000/200 000,CS ratio 15%.
P: min/max sales 10 000/180 000,CS ratio 20%.
Fixed costs for the period are budgeted at 60000. What is the lowest break even sales value, subject to meeting the min.sales value constraints. Thank you kindly for your most valuable assistance.You must have an answer in whichever book you found the question and you should ask about whatever in the answer you do not understand. (If there is not an answer in your book then you are wasting your time with it and should use a Revision Kit from one of the ACCA approved publishers)
You can calculate the contribution from the minimum sales of each that have to occur:
(50,000 x 5%) + (50,000 x 10%) + (20,000 x 15%) + (10,000 x 20%) = 12,500.So for breakeven they need an extra 60,000 – 12,500 = 47,500 contribution.
So they will produce extra P’s (with the highest CS ratio) up to the maximum of an addition 170,000 sales. This means they will still not have enough, so they will then also produce extra R’s (with the next highest CS ratio) up to the maximum, and so on until they have got the extra 47,500.
Hi John. I can’t thank you enough for your response. Kindly do forgive me for an incomplete question. The answer they provided was as follows:
Contribution from sales of P between min and max points=170,000*20%=34,000. Required contribution from prod.R( which has 2nd highest CS ratio)=60’000-12500-34000=13500.Revenue reqd get R’s contribution is therefore 13500/0.15=90,000. Lowest break even sales=130k(minimum total sales)+170k(from P)+90k=390k. All this unfortunately didn’t help me to understand. I worked out the tot.min.contribution,12.5k, as you did. Then tot.min sales of 130k. My CS ratio was 12.5/130k= 0.9062. This gave me sales rev.of 60k/0.0962=624k. I humbly appreciate your input in regards to where the error is in my approach. Regards.I’ll revisit your lectures on this topic. Perhaps that’ll help a bit. It’s the angle of the question that had my head spinning. I tried the approach on their previous examples, working backwards but I could see I was doing something wrong. Many thanks once again
- You must be logged in to reply to this topic.