Question:
Discuss about the Breakeven Point of Sales for Contemporary Accounting.
BREAKEVEN SALES CALCULATION
IN UNITS= TOTAL FIXED COST (Bazley, Hancock & Robinson, 2014).
CONTRIBUTION PER UNIT
IN DOLLARS= TOTAL FIXED COST (Cafferky, 2010).
P/V RATIO
Note:
- Since fixed cost for individual products is not given in the question, therefore composite contribution per unit will have to be calculated in order to find the breakeven units of individual products.
- The sales mix taken for the purpose of calculation of composite contribution as well as p/v ratio is the ratio of number units sold. It is given in the question that the number of units of product Private Zoo is 3 times the number of units sold of other individual products. Therefore, the ratio is 1:1:3
Calculation:
|
PRODUCTS |
SQUID |
PROUD STASH |
PRIVATE ZOO |
TOTAL(Weighted Average) |
|
Units Sold (Old) |
4500 |
4500 |
6000 |
|
|
Selling Price (A) |
64 |
78 |
125 |
|
|
Variable Cost: |
||||
|
Variable Manufacturing Cost Per Unit |
40 |
48 |
93.75 (75+(0.25*75) |
|
|
Variable Selling Cost Per Unit |
12 |
19(16+3) |
22 |
|
|
Total Variable Cost (B) |
52 |
67 |
115.75 |
|
|
Contribution Per Unit (A)-(B) |
12 |
11 |
9.25 |
|
|
New Sales Mix (Given) (1:1:3) |
0.2 |
0.2 |
0.6 |
|
|
Proportionate Contribution Per Unit |
$2.4 |
$2.2 |
$5.55 |
|
|
Weighted average contribution per unit |
$ 10.15 |
|||
|
P/V Ratio (Contribution Per Unit/Selling Price Per Unit) |
18.75% |
14.10% |
7.40% |
|
|
Weighted average p/v ratio |
11.01% |
|||
|
Total Fixed Overhead |
||||
|
Manufacturing Overhead |
$1,50,000 |
|||
|
Selling And Admin Overhead |
$1,20,000 |
|||
|
Total Fixed Overhead |
$ 2,70,000 |
|||
|
Breakeven Sales (Units) |
26601 |
|||
|
Breakeven Units |
5320 |
5320 |
15961 |
|
|
Breakeven Sales In Value |
$ 24,52,220 |
|||
|
Breakeven Sales In Value |
$ 4,90,440 |
$ 4,90,440 |
$ 14,71,321 |
Working Notes:
Total fixed overhead=
|
Manufacturing Overhead |
$1,50,000 |
|
Add: Selling And Admin Overhead |
$1,20,000 |
|
Total Fixed Overhead |
$ 2,70,000 |
Breakeven sales (units) = IN UNITS= TOTAL FIXED COST
CONTRIBUTION PER UNIT
= $270,000
$10.15
= 26601 units
Now 26601 units have been divided in the proportion of 1:1:3 (as determined above) between the products viz. Squid, Proud Stash and Private zoo.
Squid =26601 x 1 = 5320 units
5
Proud Stash = 26601 x 1 = 5320 units
5
Private Zoo = 26601 x 3 =15961 units
5
3)
Breakeven sales (units) = IN DOLLARS= TOTAL FIXED COST
P/V RATIO
= $270,000
11.01%
= $ 2452202 (difference in the sales amount because of rounding off the percentage of P/V ratio to 11.01%)
Now sales of $245220 has been divided into the proportion of 1:1:3 (as determined above) between the products viz. Squid, Proud Stash and Private zoo.
Squid = $2452202 x 1 = $490440
5
Proud Stash = $2452202 x 1 = $490440
5
Private Zoo = $2452202 x 3 = $1471321
5
Weighted average p/v ratio= (18.75%x 0.2*) + (14.10%x 0.2) + (7.40%x 0.6#)
=11.01% (The percentage figure has been rounded off and due to this reason there could be slight variation in the amount of breakeven sales figure.)#0.2 = 1/5
0.6 =3/5
Weighted average contribution per unit= (12x 0.2) + (11x 0.2) + (9.25x 0.6)
= $10.15
References
Cafferky, M., 2010. Breakeven Analysis: The definitive guide to cost-volume-profit analysis. Business Expert Press.
Bazley, M., Hancock, P. & Robinson, P., 2014. Contemporary accounting, available on https://books.google.co.in/books?id=KgepBQAAQBAJ&pg=PA543&dq=break+even+analysis+pdf&hl=en&sa=X&ved=0ahUKEwj4m-vl8tbXAhVJto8KHZuiB5IQ6AEIMTAC#v=onepage&q=break%20even%20analysis%20pdf&f=false. Assessed on 24-11-2017.
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