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- June 19, 2020 at 1:04 pm
Sir, I have doubts regarding the following questions from CVP analysis topic
1.H Co uses a marginal cost plus pricing system to determine the selling price for one of its products,Product X.
Product X has the following costs
Direct materials 12
Direct labour 5
Variable overheads 3
Fixed overheads 40
Fixed overheads are $20,000 for the year. Budgeted output and sales for the year are 500 units and this should be sufficient for Product X to breakeven.
What profit mark-up would H Co need to add to the marginal cost to allow H Co to break even? ___________%
A company has fixed costs of $1.3m. Variable costs are 55% of sales up to a sales level of $1.5m, but at higher volumes of production and sales, the variable cost for incremental production unit falls to 52% of sales.
What is the BEP in sales revenue, to the nearest $1000?
3. A company makes and sells a single product. When sales per month are $6.8 million,
total costs are $6.56 million. When sales are $5.2 million, total costs are $5.44 million. There is a step cost increase of $400,000 in fixed costs when sales are $6 million, but variable unit costs are constant at all levels of output and sales.
What is the break even point for sales revenue per month?
There are 2 break even points: $5.64 million and $6.36 million
$5.64 million only
$6.36 million onlyJune 19, 2020 at 3:05 pm
Please do not simply type out questions and expect to be provided with an answer. You must have answers in the same book in which you found the questions, so ask about whatever it is in the answers that you are not clear about – then I will explain.
Also, did you watch my free lectures on CVP analysis before attempting these questions?June 23, 2020 at 7:19 pm
1. I didn’t understand how
Break even point= $20,000=500 * (selling price – $20)
2. In this case, I didn’t understand how C/S ratio is calculated and how we arrive to the final
answer (i.e. the total sales to achieve break even)
3. I didn’t understand how to calculate variable costsJune 24, 2020 at 10:23 am
Again, have you watched the free lectures?
1. At breakeven the contribution must equal the fixed overheads. Therefore the total contribution must be $20,000 and therefore the contribution per unit must be 20,000/500 = $40. Since the variable costs are $20 per unit, the selling price must be $60 per unit.
2. For sales of $1.5M, the contribution is 45% x $1,500,000 = $675,000.
For breakeven the contribution needs to be $1,300,000 and therefore they need an extra $625,000. The extra sales have a variable cost of 52% of sales, the extra contribution must be 48% of the extra sales. So the extra sales must be 625,000/48% = $1,302,083
Therefore the total sales must be 1,500,000 + 1,302,083 = $2,802,083
3. The difference in total costs between the two levels is $1,120,000. Of this, $400,000 is extra fixed costs. Therefore the extra variable cost between the two levels is $720,000.
Therefore the variable cost is $720,000 / (6.8M – 5.2M) = $0.45 per $ of sales, and therefore the CS ratio is 55%.
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