Chapter 11, Problem 11.20E

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis:

The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:

Contribution margin = Sales - Variable cost.

Similarly contribution margin ratio = Contribution/sales

Breakeven Point:

The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in units is calculated with the help of following formula:

  $\text{Breakeven point }\left(\text{units}\right)\text{ = }\frac{\text{Total Fixed Costs}}{\text{(Sales Price Per unit -Variable Cost per unit)}}$

Weighted Average Contribution Margin:

Weighted Average Contribution Margin is calculated for two products with the help of following formula:

  $\begin{array}{l}WeightedAverageContributionMargin=\left(ContributionmarginofProductA*WeightofproductA\right)\\ +\left(ContributionmarginofProductB*WeightofproductB\right)\end{array}$

Requirement-a:

To Calculate:

The Overall Breakeven Sales unit

Answer to Problem 11.20E

The Overall Breakeven Sales unit is 36,000 Units

Explanation of Solution

The Overall Breakeven point in units is calculated as follows:

	Game Players	Tablets	Overall
Unit Selling Price (A)	$ 50	$ 120
Unit Variable Cost (B)	$ 30	$ 80
Unit Contribution Margin (C) =(A-B)	$ 20	$ 40
Sales Mix (D)	70%	30%
Weighted Average Contribution Margin per unit (E) = (C*D)	$ 14	$ 12	$ 26
Total Fixed Cost (F)			$ 936,000
Overall Breakeven point (units) (G) = (F/E)			36,000

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis:

The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:

Contribution margin = Sales - Variable cost.

Similarly contribution margin ratio = Contribution/sales

Breakeven Point:

The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in units is calculated with the help of following formula:

  $\text{Breakeven point }\left(\text{units}\right)\text{ = }\frac{\text{Total Fixed Costs}}{\text{(Sales Price Per unit -Variable Cost per unit)}}$

Weighted Average Contribution Margin:

Weighted Average Contribution Margin is calculated for two products with the help of following formula:

  $\begin{array}{l}WeightedAverageContributionMargin=\left(ContributionmarginofProductA*WeightofproductA\right)\\ +\left(ContributionmarginofProductB*WeightofproductB\right)\end{array}$

Requirement-b:

To Calculate:

The Breakeven Sales unit for each product

Answer to Problem 11.20E

The Breakeven Sales unit for each product is as follows:

	Game Players	Tablets
Breakeven point (units)	25200	10800

Explanation of Solution

The Breakeven Sales unit for each product is calculated as follows:

	Game Players	Tablets	Overall
Unit Selling Price (A)	$ 50	$ 120
Unit Variable Cost (B)	$ 30	$ 80
Unit Contribution Margin (C) =(A-B)	$ 20	$ 40
Sales Mix (D)	70%	30%
Weighted Average Contribution Margin per unit (E) = (C*D)	$ 14	$ 12	$ 26
Total Fixed Cost (F)			$ 936,000
Overall Breakeven point (units) (G) = (F/E)			36,000
Breakeven point (units) (H) =(G*D)	25200	10800