2 The PV chart can show information about each product individually 3 It can be

2 the pv chart can show information about each

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assumed. (2) The P/V chart can show information about each product individually. (3) It can be done using three approaches Output in $ sales and a constant product mix Products in sequence Output in terms of % of forecast sales and a constant product mix Example 10: Assume that budgeted sales are 2,000 units of X, 4,000 units of Y and 3,000 units of Z. A breakeven chart would make the assumption that output and sales of X, Y and Z are in the proportions 2,000: 4,000: 3,000 at all levels of activity, in other words that the sales mix is 'fixed' in these proportions. Sales price per unit of x = $8 y = $6 z = $6 Variable cost per unit of x = $3 y=$4 z =$5 Fixed cost of $10,000 REQUIRED Prepare the breakeven chart in three different approaches Part 8: Multi-product P/V charts (1) The same information could be shown on a P/V chart, as follows.
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___________________________________________________________________________________________________________________ Page 8 of 12 IPK COLLEGE 1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG TEL : 012-5203212 / 0125113212 / 04-5512588 Subject: Financial Management (DFM1) Prepared by Chester Chen Email : [email protected] An addition to the chart would show further information about the contribution earned by each product individually , so that their performance and profitability can be compared. Contribution $ Sales $ C/S ratio % Product X Product Y Product Z 10,000 8,000 3,000 16,000 24,000 18,000 62.50 33.33 16.67 By convention, the products are shown individually on a P/V chart from left to right , in order of the size of their C/S ratio . In this example, product X will be plotted first, then product Y and finally product Z. A dotted line is used to show the cumulative profit/loss and the cumulative sales as each product's sales and contribution in turn are added to the sales mix. Product Cumulative sales Cumulative profit $ $ X 16,000 - X and Y 40,000 8,000 X, Y and Z 58,000 11,000 You will see on the graph which follows that these three pairs of data are used to plot the dotted line, to indicate the contribution from each product. The solid line which joins the two ends of this dotted line indicates the average profit which will be earned from sales of the three products in this mix.
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___________________________________________________________________________________________________________________ Page 9 of 12 IPK COLLEGE 1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG TEL : 012-5203212 / 0125113212 / 04-5512588 Subject: Financial Management (DFM1) Prepared by Chester Chen Email : [email protected] The diagram highlights the following points. (a) Since X is the most profitable in terms of C/S ratio, it might be worth considering an increase in the sales of X, even if there is a consequent fall in the sales of Z. (b) Alternatively, the pricing structure of the products should be reviewed and a decision made as to whether the price of product Z should be raised so as to increase its C/S ratio (although an increase is likely to result in some fall in sales volume). The multi-product P/V chart therefore helps to identify the following. (a) The overall company breakeven point. (b) Which products should be expanded in output and which, if any, should be discontinued. (c) What effect changes in selling price and sales volume will have on the company's breakeven point and profit.
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___________________________________________________________________________________________________________________ Page 10 of 12 IPK COLLEGE 1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG TEL : 012-5203212 / 0125113212 / 04-5512588 Subject: Financial Management (DFM1) Prepared by Chester Chen Email : [email protected] Example 11: A company sells three products, X, Y and Z. Cost and sales data for one period are as follows.
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  • Spring '17
  • JANE KDAL

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