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Good morning sir, hope u can help me with this question. Thank you in advance!
The question is as follows:
P Co makes two products, P1 and P2. The budgeted details for each product are as follows:
P1 P2
$ $
Selling price 10.00 8.00
Cost per unit:
Direct materials 3.50 4.00
Direct labour 1.50 1.00
Variable overhead 0.60 0.40
Fixed overhead 1.20 1.00
––––– –––––
Profit per unit 3.20 1.60
––––– –––––
Budgeted production and sales for the year ended 30 November 20X5 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 included specific fixed overheads totalling $2,500.
If only product P1 were to be made, how many units (to the nearest whole unit) would
need to be sold in order to achieve a profit of $60,000 each year?
A 25,625 units
B 19,205 units
C 18,636 units
D 26,406 unitswhy they have added the fixed costs of both P1 and P2 as well as the contribution.I thought that as the question is asking for : “ONLY IF P1 were to be made” we have to make calculation based solely on P1 .
18637
No units req’d to make target prof is equal to all of the fc that have to be paid as they are fixed + prof/cont for P1
FC
1.2 x 10000 = 12,000 P1
+ 1 * 12500. = 12500 P2
– 2500 spec o\h
These are specific overheads and therefore are applicable here!
= 22000Cont pu P1 = 3.20 + 1.20 = 4.40
So 22000+60000 / 4.40 = 18637
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