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- June 27, 2021 at 8:46 am #626439
A company budgets to sell its three products a, b and c in the ratio 2:3:5 respectively, measured in units of sales. Unit sales prices and variable costs are as follows.

Product a product b product c

Selling price 20 18 24

Variable cost 11 12 18

Budgeted fixed costs are 1.2 million. What sales will be needed to achieve a target profit of 400000 for the period. Give your answer in millions to 3 decimal points.For the above question, is it correct to calculate the contribution to sales ratio by adding the contribution per unit of each of the three products and dividing by 3 and then dividing by the addition of all three selling prices divided by 3.

Is the second approach of dividing the contribution per unit of a by 10 and then multiplying by 2 plus the contribution of b divided by 10 and multiplied by 3 plus the contribution of c divided by 10 multiplied by 5 correct. Then calculating the selling prices by dividing 20 by 10 and then multiplying by 2 plus 6/10 multiplied by 3 plus 6 divided by 10 multiplied by 5 and then dividing the sum of these three contributions by the sum of selling prices of these three products correct to arrive at the contribution to sales ratio.

The third thing is that if the sum of the contribution per unit calculated using the second approach is divided by 3 and the sum of the selling price per unit calculated using the second approach is divided by 3 and then dividing the contribution by the selling price is correct. It leads to the same contribution to sales ratio as that calculated using the second approach.

Also how to calculate the contribution per unit or weighted average contribution per unit instead of the contribution to sales ratio from the above information.

How to calculate the sales volume required to achieve fixed costs plus target profit and then multiplying it by a selling price to arrive at the sales revenue required to achieve this fixed cost and target profit.

At the back of the book, weighted average sales price per unit has been calculated by multiplying the individual selling prices by each of the ratios and then dividing by 10. Also a weighted average variable cost per unit has been calculated in the same way. Is this method correctJune 27, 2021 at 8:59 am #626442You cannot calculate the average CS ratio bu calculating the individual CS ratios and then just taking an average in the way you suggest.

I explain why we cannot do that, and how we do calculate it in my free lectures on multi-product CVP analysis.

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