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Hi John
Ec ltd produce and sell the following two product throughtout the year in a constant mix:
Variable cost per $ of sale = product x $0.45
Product y $0.60
Fixed cost $ 1212000
The management of ec has started the total sale revenue will reach a maximum of $ 4000000 and is generated by the two product in the following proportion:Variable cost per $ of sale: product x= 70%
Product y= 30%I have managed the calculate the breakeven sales revenue which equals to $2,400,000.
Task (b) Prepare a profit volume chart on the above situation for the maximum sales Revenue. Show on the same chart the effect of a change in the sales mix to product X 50% and Product Y 50&. Clearly indicate on the chart the breakeven point for each situation.
After looking at the answers i’m struggling to understand where the profit figures for both Sales mixes came from; $808,000 & $688,00.
Could you help please
Kind Regards
RobertFor part (a), the total revenue from X will be 70% x $4M = $2.8M, and therefore the total contribution will be 2.8M x 55% = 1,540,000.
The total revenue from Y will be 30% x $4M = $1.2M, and therefore the total contribution will be 1.2M x 40% = 480,000.Therefore the total contribution will be 1,540,000 + 480,000 = 2,020,000, and the total profit is 2,020,000 – 1,212,000 = $808,000.
It is the same workings for part (b) except using 50% and 50% instead of 70% and 30%.
However do appreciate (as I state in my free lectures) that you can no longer be asked to draw a PV chart (or any chart) in the exam, although you are expected to know what it is.
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