Student Forums CMA Part 2 Section C: Decision Analysis C.1. CVP Analysis Question ID: HTB 2.2.014 (Topic: CVP Analysis)

Question ID: HTB 2.2.014 (Topic: CVP Analysis)

  • This topic has 1 reply, 2 voices, and was last updated 1 month ago by Lynn Roden.
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  • #235564
    Manish Srivastava
    Participant

    Dear Sir 

    I got the answer correct but i have a doubt to be cleared. While i took the weighted Average Contribution Margin as 6.75 and divided total FC $975000 by $ 6.76 it gave the answer as 144,445 units BEP. i wanted to see the individual units produced by each product line. Therefore i divided FC for Plastic frame $ 195,000 by $1.5 (wt. Average Contribution margin ) but the answer was higher than the total BEP units. Please explain  

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  • #235766
    Lynn Roden
    HOCK international

    Hello Manish Srivastava,

    If you want to calculate how many of each product needs to be sold in order to break even, you need to apply the existing sales mix of 25% plastic frames and 75% glass frames to the total breakeven volume. Multiply the total breakeven volume by 25% to find the number of plastic frames and multiply the breakeven volume by 75% to find the number of glass frames.

    Plastic:144,445 x 0.25 =36,111
    Glass:144,445 x 0.75 =108,334
      144,445

    Proof:

    Plastic revenue36,111 x $6 =$216,666
    Glass revenue108,334 x $7 =758,338
    Contribution margin $975,004
    Less: Fixed costs 975,000
    Net income 4

     

    The $4 difference is due to rounding.

    Lynn

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