Calculate the break-even level of sales, Cost Accounting

Assignment Help:

Me ole cock spaniel plc. makes 3 products, details as follows:

Apples (£) Pears (£) Cockneys (£)

Selling price 60 80 40

Variable cost (20) (30) (20)

Contribution 40 50 20

Sales (units) 2,000 3,000 5,000

Fixed overhead for the year £800,000

Calculate the break-even level of sales?

Solution:

Average contribution per unit

2,000 x £40 = 80,000

3,000 x £50 = 150,000

5,000 x £20 = 100,000

Total 330,000/ 10,000 units = £33 average contribution per unit

OR 2/10 x £40 + 3/10 x £50 + 5/10 x £20 = £33 average contribution per unit

£800,000 / £33 per unit = 24,242 units sold (in the mix 2:3:5)

Break-even revenue

Apples 2/10 x 24,242 units sold = 4,848 x £60 = 290,880

Pears 3/10 x 24,242 units sold = 7,273 x £80 = 581,840

Cockneys 5/10 x 24,242 units sold = 12,121 x £40 = 484,840

24,242 1,357,560

Alternative method would be to use the average C/S ratio

Apples 0.666 x 0.2 = 0.133

Pears 0.625 x 0.3 = 0.1875

Cockneys 0.500 x 0.5 = 0.25

0.5705

£800,000/0.5705 = £1,402,278 (close enough to £1,357,560 above!!!)

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