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I dont understand the model answer of calculating the minimum target contribution to sales ratio, can anyone explain to me or is there other simplier way to do it?
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Fundamentally, it tested the candidates on using the sensitivity analysis. ‘Contribution to sales ratio’ (C/S Ratio) should have been learnt in the CVP analysis for the calculation of breakeven in sales dollars. The solution should be the simplest and the most straightforward to solve the required C/S ratio.
The examiner used the sales ratios to calculate the additional Contribution required for each year (4X for 2009, 9X for 2010, and 5X for 2011) and discount them to cover the $426,932 shortfall in NPV.
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