Unit 1: Cost-Volume-Profit Analysis Economics Worksheet With Answers - Cma311s Notes, 2010 Page 13
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27Product P per unit Product E per unit
Selling price
N$10,00
N$12,00
Variable costs:
Production and selling
N$ 5,00
N$10,00
Common fixed costs:
Production and selling (for six months) N$561 600
You are required in respect of the forthcoming six months to:
8.1
state what the break-even point in N$’s will be and the number of each product this figure represents
if the two products are sold in the ration 4P to 3E;
8.2
state the break-even point in N$’s and the number of products this figure represents if the sales mix
changes to 4P to 4E (ignore fractions of products);
8.3
advise the sales manager as to which product mix should be better, that in 8.1 or that in 8.2 above.
Graphical presentation for multiple products
In the paragraphs above you learned that the relationship between cost, volume and profit could be presented
by a graph. You also learned that there are three types of graphs namely the break-even chart, the
contribution chart and the profit-volume graph. When the details of more than one product have to be
presented graphically, more lines have to be drawn and this can become very cumbersome as well as
confusing. However, the easiest method is to make use of the Profit-volume graph.
Example 7
An enterprise supplied the following information regarding its three products:
Details
Product A
Product B
Product C
N$
N$
N$
Sales
160 000
160 000
80 000
Variable cost
80 000
120 000
80 000
Contribution
80 000
40 000
NIL
Total fixed cost
N$40 000
Required:
Plot the above information on a Profit-volume graph and indicate the break-even sales clearly.
Solution to Example 7
Step 1:
Calculate the contribution ratio of each product separately and rank them in order from the largest to the
smallest:
Product A
Product B
Product C
Contribution ratio
N$80 000 x 100%
N$40 000 x 100%
N$0 x 100%
N$160 000
N$160 000
N$80 000
= 50% (0,5)
= 25% (0,25)
= 0% (0)
Ranking = A, B, C.
13
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