Page 84 - PM Integrated Workbook 2018-19
P. 84
Chapter 3
Example 2
Company A produces Product X and Product Y. Fixed overhead costs amount
to $200,000 every year. The following budgeted information is available for
both products for next year:
Product X Product Y
Sales price $50 $60
Variable cost $30 $45
Contribution per unit $20 $15
Budgeted sales (in units) 20,000 10,000
In order to calculate the breakeven revenue for the next year, using the
budgeted sales mix, we need the weighted average C/S ratio as follows:
Total contribution
Weighted average C/S ratio
Total revenue
(20,000 × $20) + ($10,000 × $15)
Weighted average C/S ratio =
(20,000 × $50) + ($10,000 × $60)
Weighted average C/S ratio = 34.375%
The breakeven revenue can now be calculated this way for company A:
Fixed costs
Breakeven revenue =
Weighted average C/S ratio
$200,000
Breakeven revenue=
0.34375
Breakeven revenue = $581,819
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