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Hello Mr John,
Why in this question is the additional $1800 of contribution to be made by computing the additional units to sell of Product X and not Product Y itself???Big confusion please explain in detail.
I think that we must be looking at different editions of the kit (because in my copy Q128 does not have the information that you state).
Please type out just the first line of the question and then I should be able to find the question and explain what you are asking about 🙂
A company makes two products with the following characteristics
Product X Product Y
C/s Ratio 0.3 0.5
Selling price per unit $3 $4.80
Maximum Demand 8000units 3000unitsFixed costs are $9000
What is the maximum revenue required for production to break even.
I still cannot find the question in my edition 🙁
However the fastest way of achieving breakeven is to first make the product with the highest CS ratio, which is Y.
The maximum demand for Y is 3,000 units, and so making 3,000 units will give a contribution of 3,000 x 0.5 x $4.80 = $7,200. This is not enough to breakeven – they need another $1,800. They cannot make any more of Y (because they will not be able to sell them) and so they will then make 1,800 / (0.3 x 3) = 2,000 units of X.
Have you watched my free lectures on CVP analysis? The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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