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Hi 🙂 I have two questions
to calculate the breakeven revenue, is it not fixed cost / contribution ? In the lecture the tutor does fixed cost /cs ratio ? Not sure why.
secondly what does it mean by ‘ assuming that the budget mix of production remains the same’. My understanding is that the sales of units are assumed to be the same to carry out the CVP calculation ?
The formula to calculate the breakeven revenue is indeed fixed cost divided by the contribution. This gives you break even in units. Then you can multiply by the selling price to get to break even revenue.
Or it can be done as fixed cost divided by the CS ratio to calculate the breakeven revenue.
The CS ratio represents the contribution as a percentage of sales, so dividing the fixed cost by the CS ratio is equivalent to dividing it by the contribution.Regarding the phrase “assuming that the budget mix of production remains the same,” it means that the proportion of each product in the sales mix remains unchanged. In other words, the relative sales volumes of different products remain constant.
This assumption is made to simplify the analysis and calculate the breakeven sales revenue based on the average CS ratio. It assumes that the products are produced and sold in the same proportions, and the CS ratio is calculated based on this assumption.
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