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Example Single Product LTD: Required: (A) Calculate The Following

The document provides budgeted information for a company that produces three products: pins, numbs, and needles. It includes the selling price, variable cost, fixed cost, and profit per unit for each product, as well as the budgeted sales volume. The company is looking for advice on whether to continue allocating resources equally to all products or to produce and sell products in preference to one another based on the budgeted results and production problems reported.

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97 views

Example Single Product LTD: Required: (A) Calculate The Following

The document provides budgeted information for a company that produces three products: pins, numbs, and needles. It includes the selling price, variable cost, fixed cost, and profit per unit for each product, as well as the budgeted sales volume. The company is looking for advice on whether to continue allocating resources equally to all products or to produce and sell products in preference to one another based on the budgeted results and production problems reported.

Uploaded by

Hamza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Example Single Product Ltd

A company produces and sells one product, Product Z. The following budgeted information
is available:
Product Z
$

Selling price per unit 50


Variable cost per unit 30
Contribution per unit 20
Fixed costs (total) 200,000

Budgeted sales volume 15,000


Budgeted profit 100,000

Required:
(a) Calculate the following:
(i) Break even point (units)
(ii) Margin of safety
(iii) CS Ratio for Product Z
(b) If the company wants profits to increase to $250,000, calculate how many
units would need to be produced and sold to achieve this target.
CVP – Multi product environment
Suppose a company produces and sells 2 products. The following budgeted information is
available:
Product A Product B
Selling price $40 $60
Variable cost $20 $25
Contribution/unit $20 $35
Budgeted sales units 16,000 8,000
CS Ratio 0.5 0.58
Fixed costs are $400,000
In a multi-product environment, the following formulae apply:
1. Weighted average CS Ratio = Total contribution/total sales revenue
= ($20 x 16000 + 35 x 8000)/($40 x 16000 + $60 x 8000) = 0.54
2. B/E sales revenue = Fixed costs/W.A. CS Ratio
= 400,000/0.54 = $746,667
3. B/E mixes = Fixed costs/contribution per mix
In multi-product CVP, it is assumed that products will be sold in a constant mix. In the
above budget, the following applies:
Product A Product B
Budgeted sales 16,000 8,000
So, for each 2 units of Product A sold, 1 unit of Product B will be sold.
The contribution per mix is then:
$20 x 2 + $35 x 1 = $75
B/E mixes = $400,000 / $75 = 5,333. The break even units of each product can now
be calculated:
Product A Product B
Units/mix 2 1
B/E units 10,666 5,333
Example CVP Ltd
CVP Ltd is investigating the risks attached to sales plans and profit levels. The management
of the company feels that they are always struggling to create a realistic sales plan which
should add to the value of CVP and its shareholders. Recently there have been production
problems reported by the production director in plant utilisation which have alerted the
board. Now they are not sure whether to allocate resources to all their products equally
which they have done in the past, or to produce and sell the products in preference to each
other.
Following are the extracts from last year’s budgeted results relating to three products.
PINS NUMBS NEEDLES
$ $ $

Selling price per unit 12 14 9


Variable cost per unit 4 8 2
Fixed cost per unit 2 3 6
Profit per unit 6 3 1

Budgeted sales volume 3,000 2,000 1,000

Required:
(a) Calculate the budgeted profit.
(b) Determine the break even revenue and margin of safety if the company sells
all the products as per their original sales plans.
(c) Advise the company of an alternative plan if the management wishes to
produce and sell products in preference to each other.

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