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R Company provides a single service to its customers. An analysis of its
budget for the year ending 31 December 20X5 shows that, in Period 3,
when the budgeted activity was 6,570 service units with a sales value of
$72 each, the margin of safety was 21.015%.
The budgeted contribution to sales ratio of the service is 35%.
Required:
Calculate the budgeted fixed costs in period 3.
Ok from where i can think if margin of safety is 21.015% the break even units are 5189 6570-(6570*0.21015)
Breakeven units is the point where contribution cover the fixed costs
And since the CS ratio 35% that means 5189*0.35=1816 units are where fixed costs are covered.And the fixed costs are 1816*72=$130763
Well i am puzzled why at the end the 1816 units are multiplied by the sales price of 72?If we multiply that with 72 so it will represent a sales value for 1816 units rather than fixed costs?The contribution is the CS ratio multiplied by the sales revenue, not by the units.
The breakeven sales revenue is 5189 x $72, and therefore the breakeven contribution (and therefore the fixed costs) is 5189 x $72 x 0.35.
@johnmoffat said:
The contribution is the CS ratio multiplied by the sales revenue, not by the units.The breakeven sales revenue is 5189 x $72, and therefore the breakeven contribution (and therefore the fixed costs) is 5189 x $72 x 0.35.
Kaplan solution directly multiplied the quantities with the C/S ratio and then multiplied it by revenue,was so confusing.
but now got it
thanks
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