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Sir, please could you let me know how the contribution is calculated for P2.
P CO makes two products – P1 and P2 – budgeted details of which are as follows:
Budgeted production and sales for the year ended 30 November 2015 are:
Product P1 10,000 units Product P2 12,500 units
The fixed overhead costs included in P1 relate to apportionment of general overhead costs only. However P2 also includes specific fixed overheads totalling $2,500.
If only product P1 were to be made, how many units (to the nearest unit) would need to be sold in order to achieve a profit of $60,000 each year?P1
Selling Price $10
Cost per unit:
Direct materials $3.50
Direct labour $1.50
Variable overhead $0.60
Fixed overhead $1.20
Profit per unit $3.20P2
Selling Price $8
Cost per unit:
Direct materials $4.00
Direct labour $1.00
Variable overhead $0.40
Fixed overhead $1.00
Profit per unit $1.60A 25,625 units
B 19,205 units
C 18,636 units
D 26,406 unitsThe contribution for P2 = selling price less variable costs = 8 – (4 + 1 + 0.4) = 2.60 per unit
However, I have no idea why you should want this! The question says that only P1 is to be made, and therefore the contribution from P2 is completely irrelevant!!
Have you watched my free lectures on CVP analysis?
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