X Y Z Sales volume 2000 units 2000 units 5000 units Sales price per unit 3 4 2

X y z sales volume 2000 units 2000 units 5000 units

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X Y Z Sales volume 2,000 units 2,000 units 5,000 units Sales price per unit $3 $4 $2 Variable cost per unit $2.25 $3.50 $1.25 Total fixed costs $3,250 REQUIRED Construct a multi-product P/V chart based on the above information on the axes below. Example 12 Sutton produces four products. Relevant data is shown below for period 2. Product M Product A Product R Product P C/S ratio 5% 10% 15% 20% Maximum sales value $200,000 $120,000 $200,000 $180,000 Minimum sales value $50,000 $50,000 $20,000 $10,000 The fixed costs for period 2 are budgeted at $60,000. Required Fill in the blank in the sentence below. The lowest breakeven sales value, subject to meeting the minimum sales value constraints, is $ ........... Part 9: Limitations and advantages (1) Limitations: It is assumed that fixed costs are the same in total and variable costs are the same per unit at all levels of output. This assumption is a great simplification. It is assumed that sales prices will be constant at all levels of activity. This may not be true, especially at higher volumes of output, where the price may have to be reduced to win the extra sales. Production and sales are assumed to be the same, so that the consequences of any increase in inventory levels or of 'de-stocking' are ignored. Uncertainty in the estimates of fixed costs and unit variable costs is often ignored.
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___________________________________________________________________________________________________________________ Page 11 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] (2) Advantages: Graphical representation of cost and revenue data (breakeven charts) can be more easily understood by non-financial managers. A breakeven model enables profit or loss at any level of activity within the range for which the model is valid to be determined, and the C/S ratio can indicate the relative profitability of different products. Highlighting the breakeven point and the margin of safety gives managers some indication of the level of risk involved. CHAPTER ROUNDUP Cost volume profit (CVP)/breakeven analysis is the study of the interrelationships between costs, volume and profit at various levels of activity. In a breakeven chart, the x axis is the volume of production and sales and the y axis represents money value (revenue and cost). The chart is prepared by drawing a line to show total revenue at all levels of sales, and a total cost line to show total costs at all levels of production and sales. The breakeven point is where the sales revenue line and total cost line intersect. To perform breakeven analysis for a multi-product organisation, either a constant sales mix must be assumed, or all products must have the same C/S ratio . The breakeven point for a standard sales mix of products is calculated by dividing the total fixed costs by the weighted average contribution per unit, or by the weighted average C/S ratio.
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