Question

Question 6 A cost-volume-profit (CVP) chart of two companies (A and B) for a the year 2020 is as follows: 75 Company B Profit 50 RMT000 25 Sales revenue 1 50.. 200i 250 50500550 600 RMO 50 1 00 25 50 75 Loss 100 125 150 RAI000 175 200 Required (a) Referring to the above chart, estimate the break-even sales revenue of Company A; (b) Referring to the above chart, estimate the total fixed costs of Company A (c) State which company has the higher contribution/sales ratio (justify your conclusion); (d) Estimate the level of sales at which the profit of the two companies is the same. (2 marks) (2 marks) (3 marks) (2 marks)

Answer 1

A. Break even sales is the dollar amount of revenue at which a business earns a profit of zero. This sales amount exactly covers the underlying fixed costs of a business, plus all of the variable costs associated with the sales. It is useful to know the break even sales level, so that management has a baseline for the minimum amount of sales that must be generated in each reporting period to avoid incurring losses. For example, if a business downturn is expected, the break even level can be used to pare back fixed expenses to match the expected future sales level.

Break-even Point In Sales Dollars. One can determine the break-even point in salesdollars (instead of units) by dividing the company's total fixed expenses by the contribution margin ratio. The ratio can be calculated using company totals or per unit amounts.

B. The total fixed cost of company A =105

Total fixed cost is one part of total cost. The other is total variable cost. At any and all levels of output, fixed cost is the same. It includes cost that is not dependent on, or is unrelated to, production. The best way to identifyfixed cost is to produce zero output.

C. company A

D. aprox.480 (btw 450 and 500)