Homework Answers
All the amounts are in Euros .
a)Sale price per unit = 30
Variable cost per unit = 15
Contribution per unit = 30-15=15 (sale price -variable cost)
PV Ratio = 15/30 =0.5 (contribution per unit/ sale price per unit)
Break even Point (in units) = Fixed cost/ contribution per unit
= 250,000/15 =16,666.67 units rounded to 16,667 units
Break even Point (in value) = Fixed cost/ PV Ratio
=250,000/0.5 = 500,000
the company is expecting a profit of 25,000
Sales (in units) to achieve that profit = fixed cost+target profit / contribution per unit
=(250,000+25,000)/15
=18333.33 rounded to 18333 units
Sales (in value) to achieve that profit = fixed cost+target profit / PV Ratio
=(250,000+25,000)/0.5
=550,000
b) Computation of Current Contribution per unit
| Particulars | Amount |
| Sales (1) | 80000 |
| Variable cost (material + labour + variable overhead) (2) | 55000 |
| Contribution (1-2) | 25000 |
| units | 8000 |
| Contribution per unit (25000/8000) | 3.125 |
2) New sales price of additional units = 8 per unit
Total sales = 8000*10+2000*8 = 96,000
new variable costs = (55,000/8,000)*10,000=68750
| Particulars | Amount |
| New Sales | 96000 |
| Variable cost (material + labour + variable overhead) (2) | 68750 |
| Contribution (1-2) | 27250 |
| Fixed cost | 10000 |
| NEW PROFIT | 17,250 |
since new profit is more than profit at existing capacity of 8,000 units
it is recommended to produce 10,000 units
C) Unlike traditional costing, Mariginal costing allows management to analyse profit to volume relationships
Futher tools like breakeven points, shutdown points, indifference points , CV Ratio helps management in choosing between alternative proposals .
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