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Good day Sir
May you please assist with a BPP revision kit mcq question.
A company produces and sells a single product. Budgeted as sales are $2.4 million, budgeted fixed costs are $360,000 and the margin of safety is $400,000. What are the budgeted variable costs?
What is the contribution?
The breakeven revenue must be 2,400,000 – 400,000 = 2,000,000.
The breakeven contribution is (as always) equal to the fixed costs, which are 360,000.
Therefore at breakeven, the variable costs will be 2,000,000 – 360,000 = 1,640,000.
Since the budgeted revenue is 20% more than the breakeven revenue (400,000/2,000,000), then the budgeted variable costs must also be 20% higher than at breakeven. 1,640,000 + (20% x 1,640,000) = 1,968,000
Contribution is revenue less variable costs!!
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