Saturday, February 20, 2010

Breakeven Point in Sales Revenue

Here also, numerator is the same fixed costs. The denominator now will be weighted average contribution margin ratio which is also called weighted average P/V ratio. The modified formula is as follows:
B.E. point (in revenue) = Fixed cost

Weighted average P/V ratio
Problem Ahmedabad Company Ltd. manufactures and sells four types of products under the brand name Ambience, Luxury, Comfort and Lavish. The sales mix in value comprises the following:

Brand name Percentage
Ambience 33 1/3
Luxury 41 2/3
Comfort 16 2/3
Lavish 8 1/3

The total budgeted sales (100%) are $. 6,00,000 per month.
The operating costs are:
Ambience 60% of selling price Luxury
Luxury 68% of selling price Comfort
Comfort 80% of selling price Lavish
Lavish 40% of selling price
The fixed costs are $. 1,59,000 per month.
a. Calculate the breakeven point for the products on an overall basis.
b. It has been proposed to change the sales mix as follows, with the sales per month remaining at $. 6,00,000:
Brand Name Percentage

Ambience 25
Luxury 40
Comfort 30
Lavish 05

Assuming that this proposal is implemented, calculate the new breakeven point.
a. Computation of the Breakeven Point on Overall Basis
b. Computation of the New Breakeven Point

No comments:

Post a Comment