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Dear Tutor,
I am struggling to understand how to calculate break even with given Mixes.
Can you please, please explain how this is calculated in the following question?
H Limited manufactures and sells two products – J and K. Annual sales are expected to be in the ratio of J:1 K:3. Total annual sales are planned to be $420,000. Product J has a contribution to sales ratio of 40% whereas that of product K is 50%. Annual fixed costs are estimated to be $120,000. Required: What is the budgeted break-even sales value?
Many thanks in advance
Given that sale are in the ratio 1:3, then sales of J must be 1/4 which is $105,000, and sales of K must be 3/4 which is $315,000.
Therefore the contribution from J is 40% x $105,000 = $42,000, and the contribution from K is 50% x $120,000 = $60,000.From then on it is all as explained in my free lectures on CVP analysis 🙂
John, why contribution of K is 50% of 120000? would it not be 50% of 315000?
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